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Following Roblox’ (RBLX) excellent Q3 showing, Morgan Stanley analyst Brian Nowak said his RBLX model was under review. Well, that assessment period is now over, and Nowak’s deep dive has merited a new price target.
The figure rises from $88 to $150, suggesting shares have room for another 25% uptick from current levels. Unsurprisingly, Nowak’s rating remains an Overweight (i.e. Buy). (To watch Nowak’s track record, click here)
So, what’s behind the positive outlook, then?
“RBLX's 3Q results and analyst day highlighted its early leadership in the metaverse and continued innovation to capitalize on materially higher long-term monetization opportunity,” the 5-star analyst explained. “While we had previously comped our target multiple to growing social platforms like SNAP/PINS, we believe a premium is appropriate given the advertising optionality on top of RBLX’s existing in-app purchase revenue streams.”
The bear case for Roblox until now has involved its primary attraction to a young demographic, as there have been questions on its post-lockdown growth prospects, in an environment where it will be difficult to match the covid era success. But that is an argument that looks increasingly irrelevant, as the userbase is aging up, with 17-24 age year olds currently the fastest growing cohort.
The October trends are particularly encouraging, says Nowak - bookings/DAUs/hours were 7%/17%/10% above Morgan estimates – and highlight the company’s “better than appreciated growth runway/ability to continue growing its user base, engagement and monetization even through reopening.”
Not to mention, Roblox has already positioned itself as an early metaverse leader with kids spending time in the virtual 3D worlds the gaming platform offers. The company is pivoting to “new verticals” too, such as education, as highlighted by the creation of a $10 million fund dedicated to bringing educational videogames to the classroom.
More than anything, however, Nowak likes the company stating that "in the next 3-5 years, all brands will have a Roblox Strategy." The analyst is of the belief this shows the company's “focus on driving higher branded monetization.”
So, that’s Morgan Stanley’s view, what do Nowak’s colleagues make of Roblox’ prospects? Barring 1 Hold and Sell, each, all 6 other reviews are positive, culminating in a Moderate Buy consensus rating. However, considering shares have appreciated ~43% over the past month alone, the $105.75 average target suggests shares will stay range-bound for the foreseeable future. (See RBLX stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.