Proactive Investors - Roblox Corp (NYSE:RBLX)'s second quarter results will be key as investors look for evidence the gaming platform is on track to hit its targets following a miss in the first quarter, analysts at the Bank of America (NYSE:BAC) believe.
The Street consensus is for a loss per share of $0.37 on revenue of $896.8 million, representing improvements of 20% and 15% respectively from the year-ago quarter.
“We expect Q2 to be a contentious print as investors look for evidence if the Q1 miss was just a blip due to search and discovery (S&D) staleness,” the BofA analysts wrote in a note to clients ahead of Roblox’s report, due on Thursday, August 1.
Many investors find the situation “inconclusive” despite the recent rally and positive third party alternative data trends, they added.
ReMonitor estimates Robolox grew its average concurrent users by 25% from the year-ago quarter and 33% in the July quarter to date, supportive of third-party estimates of 20% year-over-year bookings growth in Q2.
“We think a key debate lies on whether the performance improvement, if at all, has been driven by an upgrade in the S&D algorithm or the success of recent live ops events; evidence of the former could raise investor confidence that Roblox will get back to the 20% year-over-year core business growth path,” analysts wrote.
They see earnings before interest, taxes, depreciation and amortization (EBITDA) upside if Roblox’s print validates third-party data. This would also point to management’s guidance being “too conservative.”
“Management's commitment to cost control appeared apparent when it guided down calendar year 2024 bookings in May without a corresponding revision in EBITDA, and an articulation of how the use of AI is keeping moderator headcount down could further inspire investor confidence in margins,” analysts wrote.
Roblox’s ad business is not expected to make a material contribution to revenue in calendar year 2024, but the bank’s analysts anticipate updates on execution.
“A lack of substantial progress is unlikely to be a risk to guidance because the ads business is not a driver of management's 20% year-over-year long-term growth target,” analysts noted.
“Commentary that suggests traction since the full rollout of video ads on May 1st could read through positively into calendar year 2025 as management plans to provide ads segment forecast breakout at the beginning of 2025.”
The analysts repeated their ‘Buy’ rating and $60 price objective, implying upside of more than 45% from Roblox's current share price of about $41.
“We believe Roblox deserves a premium valuation because it continues to outgrow social media peers,” they concluded.