It's easy to wonder how Roblox (NYSE:RBLX) got as big as it did. The common misconception that, somehow, a single video game managed to become a publicly-traded company likely works in Roblox's favor, but Roblox is not a single game. Rather, it's an entire panoply of games with something akin to its own internal economy, and this point has drawn the attention of a lot of analysts.
Catching a Lot of Attention
Just over the weekend, several analysts started coverage on Roblox, and commonly, were quite pleased with the results. The company only went public back in March, but it's drawn the bulk of its analyst attention just over this weekend.
Goldman Sachs, for example, brought out coverage of Roblox, calling it not only a “buy”, but putting a price target of $81 per share on the company. Goldman Sachs—via analyst Michael Ng—called attention to the unique proposition posed by Roblox, in that it could largely outsource development costs to individual creators. This keeps risks particularly low, since Roblox itself has very little in the way of development capital tied up in the produce of said games.
Moreover, Goldman noted, the nature of Roblox appeals to a broad market of potential users. Not only does it call in individual game developers hoping to get noticed for clever storylines or unusual mechanics, but it also draws interest from larger players, including film and TV studios as well as individual celebrities like Lil Nas X. The appeal of both making and playing games on Roblox draws its own breed of interest.
Plenty More Where That Came From
Goldman Sachs wasn't the only one calling attention to Roblox lately; our latest research shows that there's been a downright explosion in interest in this company from investors, and it's all to the positive. Right now, Roblox is a consensus “buy”, and pretty much has been since it went IPO.
Back in late March, Stifel Nicolaus was the only analyst with a position of Roblox, calling it a “buy” with a price target of $85 per share. Then, not only did Goldman Sachs step in, but so too did Morgan Stanley, Bank of America Securities, and Truist Securities, all calling for a “buy” on the company.
Price targets, meanwhile, are a comparatively narrow range. Truist and Bank of America both have a $78 price target on Roblox, while Morgan Stanley sits at $80. Goldman Sachs is currently at $81, and the current high-water mark is the original, with Stifel Nicolaus holding at $85 per share.
A Unique Prospect in Gaming Leaves Should Leave Investors Satisfied
As noted earlier, Roblox is not a game, but rather an entire ecosystem of games. There have been comparisons between Roblox and Steam, the cloud-based PC gaming marketplace, and these aren't invalid. Developers make games for Roblox the same as they would for Steam, and users can play these games therein. With over 20 million games developed for the platform so far at last report, and more being added regularly, Roblox's position in the market seems well-established.
Better yet for Roblox—and by extension for its investors—there's plenty of interest from larger-scale operations, who have seen some serious potential in using the platform as a kind of marketing tool. The influencer marketing concept has lost steam in recent months thanks to several factors, including the loss of much of the authenticity that made influencer marketing a great idea to begin with. The notion of taking a product or service and building a video game around it, though, is a point that hasn't been explored much in recent months.
With a pandemic still keeping a lot of people penned indoors—though that may be about to slip as the warmer months once again kick in—there's a clear draw for video games. A platform that already has such a massive number of available titles could indeed be a draw for new users, and help keep the current crop in the fold as well. Further gains from what we've seen already may not yet be priced in, but are likely to arrive; Morgan Stanley's Brian Nowak actually sees a clear path for a compound annual growth rate (CAGR) of 21% in user growth, as well as a 26% CAGR for bookings, and potentially a billion dollars outright in earnings before interest, taxes, depreciation and amortization (EBITDA). Bank of America's Ryan Gee offered up similar numbers.
Roblox may ultimately prove to be one of gaming's biggest new draws, and the last few months have demonstrated what kind of value the video game market can generate. If you want an unconventional play in video games that still has excellent growth potential left to it, consider an investment in Roblox.
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