About Roblox

Roblox is an online entertainment platform offering development and operational software, catering to users in the United States and internationally. The company operates several applications that enable users to create, develop, and publish gaming content. Additionally, Roblox has developed its own cloud infrastructure, providing essential services and power to the platform. Company was founded in 2004 and headquartered in California

Roblox entered the stock market in March 2021. The company experienced a significant rally at the end of 2021, followed by a decline in technological stocks in 2022. Since then, Roblox has been awaiting a proper rally to boost its stock price.

Source: Yahoo Finance

Financial Analysis

Roblox has a market capitalization of $25.38 billion. Due to negative net income, the company's earnings per share (EPS) stand at -1.86. The total debt-to-equity ratio is 23.73%, indicating a moderate level of indebtedness. The price-to-sales (P/S) ratio is 8.62, generally considered as not positive. Liquidity indicators show a Quick Ratio of 0.88 and a Current Ratio of 1.07, slightly below the norm. However, the company is not at risk of insolvency. Currently, Roblox does not pay dividends.

Analysts remain positive about Roblox despite its negative financials. While the first quarter of 2024 showed promising results, lower-than-expected projections for in-game sales growth, translating to revenue growth of 15 to 20% this year, caused the stock to drop from $40 to $30. Second quarter results will be published at August 1st with expected EPS of -0.39.

Positive Indicators

Despite the challenges, many analysts, including us, see great potential in Roblox for several reasons. Firstly, the company is slowing down on taking new debt, a positive sign for its financial health. Like many technological companies, Roblox needed financial boosters to overcome covid 19 crisis.

Secondly, Roblox has seen skyrocketing growth in operating activities and cash flow. Strong net cash and cash equivalents provided by operating activities increased by 37% year-over-year, and record free cash flow rose by 133% year-over-year.

Thirdly, Roblox’s profitability seems to be improving. According to forecasts, Roblox should reach the bottom of negative EPS this year, with this indicator expected to become increasingly positive.

The Biggest Challenge

The main challenge for Roblox currently is the insufficient growth of in-game sales and revenue. However, Roblox has demonstrated its ability to address its own problems and maintain transparency with its shareholders. Resolving this issue could result in a boost in sales and user engagement, potentially triggering a proper rally that rewards patient investors.

Written by team of Tradematics