The problem with the metaverse is that investors have been forced to embark on a tug of war between how much key stocks should be worth today, and how much they’re likely to be worth tomorrow. This uncertainty has seen a number of major metaverse stocks fluctuate wildly in value before suffering steeper corrections as tech sell-offs punctuated much of Q4 2021 and Q1 2022. Roblox has suffered a similar fate to the likes of Meta, and Nvidia, but optimistic analyst predictions point to a change of fortune on the horizon.
Worryingly, Roblox has tumbled more than 72% on the New York Stock Exchange in the space of four months, falling from a stock price of $134.72 to $37.54 at the time of writing.
Zooming out into what’s been a rollercoaster year for Roblox, in which metaverse investing really gathered momentum before embarking on a widespread decline, we can see that the video game developer initially enjoyed a sharp acceleration of investor interest before momentum quickly fell away and the company’s share price collapsed below the comfortable range it had spent much of 2021 nestled in.
Despite falling victim to a wider metaverse sell-off, Roblox shares tumbled more than 11% in mid-February following the announcement that the company had missed its Q4 expectations on both the top and bottom lines.
In terms of revenue, Roblox took in $770 million, which fell $2 million short of expectations calculated by Refinitiv consensus estimates. Likewise, the company’s loss per share was far worse than expectations, standing at 25 cents, as opposed to the expected 13 cents.
Despite the shortcomings, the company did report 33% more daily active users year-over-year, which grew to 49.5 million.
The concept behind Roblox, which operates as an open gaming platform that allows users to create their very own worlds in which they can interact with other users online has captured the imagination of many metaverse enthusiasts.
Roblox’s notion of selling virtual currency to players, which can subsequently be used to buy digital items within the game has also led to some major partnerships with entities like the NFL and Nike.
However, many commentators believe that the company still has a long way to go before it’s ready for the metaverse, and as such, investors should be wary of banking on the asset as a metaverse stock.
“As the metaverse unfolds in 2022, companies like Roblox or Unity have a lot of work ahead of them,” said Maxim Manturov, head of investment advice at Freedom Finance Europe. “They need to offer much better graphics in games. Unity is betting on becoming a leader in the metaverse by creating 3D content in AR and VR. The industry needs to move quickly in this space.”
Roblox’s tumbling price has begun to attract widespread investor interest from onlookers who believe that the stock has fallen too far for the level of potential it has in a metaverse-driven future.
According to Benjamin Black, a Deutsche Bank analyst, investors can feasibly target a future price of $60 on the stock. This represents an upside of almost 40% at the time of writing. Furthermore, analysts’ consensus price on the stock has been found to be even higher, reaching a prediction of $86.46 for the stock.
Shares of RBLX stock has attained a heavy ‘buy’ rating among analyst consensus ratings, which is constructed of 10 ‘buy’ ratings, three ‘hold’ ratings, and one single ‘sell’ rating offered by experts.
“We calculate that if international penetration trends mimic the US’s current level over the next 4 years, Roblox would still have sufficient runway to more than double total DAUs by FY25 from aging-up alone,” explained Benjamin Black in a Deutsche Bank note that was obtained by CNBC.
Roblox’s discounted stock has also attracted the attention of Wall Street star investor Cathie Wood, who appears enticed by the prospect of catching RBLX’s falling knife.
Wood’s Ark Investment Management firm has form for buying the stock of high-potential tech companies, and off the back of Roblox’s disappointing earnings report regarding Q4 2021, Ark went through with the purchase of some 454,667 shares in the Californian video game in the wake of the floundering share price.
Whether or not Wood’s gamble on Roblox will pay off remains to be seen, but for a video game stock that’s set to play a key role in the roll out of the early stages of the metaverse, it seems likely that the company won’t struggle for much longer.
Furthermore, if Roblox can fulfill its potential and establish itself as a market leader as the transition towards the metaverse begins to take place, analysts will likely be targeting prices considerably higher than $60 for starters.