Goldman downgrades Roblox, says user growth could slow in post-pandemic world

Published Tue, Apr 19 20227:05 AM EDT

The near-term outlook for Roblox is murky as the gaming company's user growth could decelerate in a post-pandemic world, according to Goldman Sachs. Analyst Eric Sheridan downgraded shares of Roblox to neutral from buy, saying in a Tuesday note to clients that the gaming company faces several challenges that will hinder the stock's performance in the near term. "We expect that tough comps (with recent RBLX data and third-party data showing declining trends), aging up the user base, and reinvesting into the developer community as well as R & D talent will continue to dominate the narrative over the near-term, limiting upside in stock performance," Sheridan wrote. Goldman Sachs also slashed its price target on Roblox to $50 per share from $108. The new price target is about 22% above where shares closed on Monday. Roblox went public in March 2021, and its stock shot up more than 48% through the end of last year. However, the stock has fallen more than 60% in 2022 and is trading more than 71% below a high reached last November, as the world economy reopens and people spend less time at home. Goldman also noted, citing data from SensorTower, that Roblox "has seen mixed user engagement trends for the most recent quarter. Specifically, total time spent by US users decreased by 3% YoY in March, and decreased 12% MoM in February." Still, the long-term outlook for Roblox is far rosier. Goldman said that the company is positioned to be "a leading metaverse company with many long-term user cases stretching beyond gaming," as it continues to invest in user identity technology and interactive virtual worlds. The firm expects Roblox will grow bookings to $6 billion in 2026 through daily average user expansion, compared to $2.7 billion in 2021. "A mixture of putting the near term headwinds behind the company coupled with continued strong management execution could drive the share's risk/reward to be more constructive," the note read. Shares for Roblox fell 2.8% in Tuesday premarket trading. —CNBC's Michael Bloom contributed to this report.

A child looks back at a banner for Roblox, displayed to celebrate the company's IPO, on the front facade of the New York Stock Exchange (NYSE) in New York, March 10, 2021.

Brendan McDermid | Reuters

The near-term outlook for Roblox is murky as the gaming company's user growth could decelerate in a post-pandemic world, according to Goldman Sachs.