JPMorgan downgrades Roblox, says video game maker could struggle to sustain bookings growth

Published Thu, Nov 10 20226:02 AM EST

Roblox could be in trouble going forward as it struggles to sustain booking growth in the medium-term, according to JPMorgan. Analyst David Karnovsky downgraded the stock to neutral from overweight and cut his price target to $35 from $53. The new price target implies a smaller upside of 19.2% as the stock sees cooled growth in bookings with more variability than expected by the firm. "We continue to be believers in the Roblox platform long-term and view it as a leader in the emerging metaverse category, though at this point see upside to shares as limited and volatility likely to continue," Karnovsky said in a note to clients. "We move to the sidelines and look for better conviction on bookings re-acceleration or improving profitability." The video gaming company saw shares fall 21% on Wednesday after it reported a larger-than-expected loss for the quarter, even though revenue came in above estimates. Karnovsky said Roblox's bookings – which he sees as a driver of total sales – did not grow as much as expected. He expects booking growth to exit the mid-teen growth rate and stay down in 2023. Karnovsky also pointed to Roblox lowering its EBITDA forecasts to less than 10% "'at least through 2023.'" Now, Karnovsky said there's a lack of visibility around operating leverage, making it harder to see potential upsides and decreasing what he sees as the margin for error within booking growth. Still, he said the company's bookings is trending in the right direction. Karnovsky said Roblox could be boosted out of this slowdown by new features and products not currently priced in. But he said there's also downside potential if competition picks up or a worsening economic backdrop that would prompt slides in consumer spending. Ultimately, Karnovsky said there's still long-term value potential in Roblox. He's just waiting to see a restoration of the prior growth rate in bookings in the near term. "While we expect a re-acceleration in growth in 2023, we believe multiple expansion will be limited in the medium term absent a material outperformance in bookings or greater visibility into improvement in profitability," he said. The stock was down 70% compared with the start of 2022 after Wednesday's slide. — CNBC's Michael Bloom contributed to this report.