Roblox will struggle to expand its user base and convert more users to paying customers, according to Barclays. Analyst Mario Lu started research coverage of Roblox with an underweight rating and a price target of $20, which would mean the stock falling about 44% from where it last closed. Roblox has separated itself from other metaverse platforms and has emphasized mobile usage. The stock flourished during the pandemic as economic lockdowns pushed people to gaming and virtual experiences. But Lu said its core user base in ages 5 to 24 is already 30% penetrated in the U.S. and Europe, making it hard to imagine substantial growth in player volume. “Due to these structural issues, we do not believe RBLX should trade at a premium to its social media peers,” Lu said. As for creators, the company believes it can have more than 100 million over time. But Lu said it will have to focus on the next couple years because of growing competition and “unfavorable developer economics.” Lu said there is potential for more than $800 million in advertising revenue, based on predictive models using Facebook, Youtube, Snapchat and Instagram performance. To be sure, Roblox will struggle short term because its immersive ads will sell at about a 50% discount because of the unique format that will only attract certain advertisers. Average revenue per user is likely to remain “challenged,” after spiking to 10 cents per hour during the pandemic, Lu said. “While RBLX does have a large advertising opportunity ahead starting in 2023 with immersive ads, we view the stock as overvalued,” he wrote. Still, there are some reasons to like Roblox, Lu said. It has a “massive” total addressable market and likely margin upside from advertising revenue by 2025. The focus on user-generated content also insulates Roblox from risks tied to a dependency on big titles. Less reliance on paid users, and rising interest in subscription gaming, also make Roblox attractive. Shares were down almost 6% at the Tuesday morning low. — CNBC’s Michael Bloom contributed to this report.
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