On Wednesday, Wells Fargo updated its outlook on Roblox Corp. (NYSE: RBLX), raising the price target to $54 from the previous $46, while retaining an Overweight rating on the stock. The adjustment reflects a more optimistic view of the company's growth prospects, with the firm expecting a 27.5% year-over-year increase in total bookings for the third quarter, surpassing both the high end of the company's guidance and the consensus estimate.
The analyst from Wells Fargo noted that the growth in total bookings is supported by strong user engagement and positive foreign exchange movements. The third quarter saw a 35% year-over-year increase in concurrent users, marking an acceleration from the second quarter's 26% rise. Additionally, app downloads, an indicator of new user acquisition, surged 30% year-over-year in the third quarter, doubling the growth rate from the previous quarter.
Wells Fargo anticipates that Roblox will report fourth-quarter bookings between $1,380 million and $1,405 million, which translates to a 22-25% year-over-year growth, aligning with the firm's estimate of 24%. The forecast also suggests that Roblox will adjust its full-year bookings guidance to a range of $4,330 million to $4,355 million, indicating a 23-24% growth compared to the previously projected 19-20%. The EBITDA guidance is also expected to be revised up to $740 million to $760 million from the prior $640 million to $680 million.
The firm projects that Roblox will exit the fiscal year 2024 with a 24% bookings growth, positioning the company well to achieve its long-term compound annual growth rate target of over 20% for the years 2025 to 2027. The analyst emphasized the importance of Roblox's expanding monetization tools, which were showcased at the Roblox 2024 developer conference on September 6, 2024.
The conference introduced a new e-commerce partnership with Shopify (NYSE:SHOP), a creator affiliate program, and increased revenue sharing for paid access games, all of which are seen as pivotal for fostering developer engagement and long-term user growth.
The partnership with Shopify and experiments with live commerce, including collaborations with Walmart (NYSE:WMT) and Fandango, signal Roblox's commitment to expanding its direct response advertising platform. This move is considered by Wells Fargo to be a significant step in capitalizing on the digital advertising market's potential.
In conclusion, Wells Fargo's raised estimates for Roblox's third and fourth quarter bookings growth to 27% and 24%, respectively, are based on the company's robust engagement trends. The firm maintains its Overweight rating and has set a new price target of $54, which is based on a 25 times multiple of their 2026 free cash flow per share estimate of $1.98.
In other recent news, Roblox, the online videogame platform, has been subject to a short position by Hindenburg Research, raising questions about the company's user metrics. Furthermore, the company's CFO, Michael Guthrie, is set to transition to an advisory role, with a search for his successor currently underway.
Roblox has also announced a relocation of its headquarters within San Mateo, California, as per a recent 8-K filing. In terms of financial performance, the company reported a 31% year-over-year increase in its Q2 2024 earnings, with revenue reaching $893.5 million and bookings surpassing expectations at $955 million.
On the analyst front, MoffettNathanson and BMO Capital have maintained their neutral and outperform ratings respectively, while BTIG and Morgan Stanley have raised their price targets. However, TD Cowen has maintained its sell rating on Roblox shares, despite the company's recent announcement to allow creators to charge users directly in dollars for access to paid experiences.
InvestingPro Insights
Recent data from InvestingPro adds depth to Wells Fargo's optimistic outlook on Roblox Corp. (NYSE: RBLX). The company's revenue growth remains strong, with a 29.81% increase over the last twelve months as of Q2 2024, and an even more impressive 31.26% quarterly growth in Q2 2024. This aligns well with Wells Fargo's projection of accelerated bookings growth.
However, investors should note that Roblox is currently trading at a high revenue valuation multiple, according to InvestingPro Tips. This could be justified by the company's robust growth prospects, but it also implies high market expectations.
Another InvestingPro Tip highlights that Roblox holds more cash than debt on its balance sheet, which could provide financial flexibility as the company pursues its growth initiatives, including the new e-commerce partnerships and monetization tools mentioned in the article.
For those seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Roblox, providing a deeper understanding of the company's financial position and market performance.
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