Is RBLX Stock A Buy, Sell, or Hold?

RBLX 1Y EV/Revenue and EV/ EBITDA Valuations

RBLX 1Y EV/Revenue and EV/ EBITDA Valuations

S&P Capital IQ

For now, RBLX trades at NTM EV/ Revenues of 4.68x and NTM EV/ EBITDA of 49.63x, moderated compared to its 1Y mean of 6.47x/ 64.86x and hyper-pandemic peak of 21.97x/ 87.93x, respectively.

Despite so, it is also important to note that the stock currently trades with massive baked-in premiums, compared to its entertainment peers such as, Activision Blizzard (ATVI) at NTM EV/ EBITDA of 16.68x, Take-Two Interactive (TTWO) at 26.07X, and sector median of 11.29x, respectively.

Consensus Forward Estimates

Consensus Forward Estimates

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Perhaps the optimism embedded in RBLX's valuations is attributed to the consensus top and bottom line expansions at impressive CAGRs of +15.4% and +20.6% through FY2025, respectively. These numbers imply a high growth cadence despite the uncertain macroeconomic outlook.

Then again, while RBLX's growth is expected to exceed ATVI's at +6%/ +8.5%, it is likely that the former's valuations may be further moderated nearer to TTWO's. This is attributed to TTWO's top and bottom line expansion at expanded CAGRs of +15.80%/ +36.50%, respectively.

Therefore, based on RBLX's FQ2'23 share count of 612.69M and the consensus FY2025 adj EBITDA of $624.93M, we are looking at an adj EBITDA per share of $1.01 then.

Based on the normalized EV/ EBITDA valuation of 26x, it is evident that most of its upside potential has already been pulled forward to our long-term price target of $26.26, implying a minimal margin of safety.

RBLX 2Y Stock Price

RBLX 5Y Stock Price

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Due to the lack of bullish support at the $40s, RBLX has also dramatically plunged to its 2022 bottom levels of $25s. Then again, the stock already moderately bounced off those levels, potentially indicating that the pessimism has been overly baked-in.

On the other hand, this stock is only suitable for investors with high risk tolerance and long-term investing trajectory, since the company's profitability remains lumpy.

Due to the potential volatility, we are uncertain if it is wise to recommend the RBLX stock as a Buy here, resulting in a Hold (Neutral) rating.

Even if anyone chooses to add here, they must also be very patient while sizing their portfolios accordingly, since its eventual reversal may take longer than a few quarters. $Activision Blizzard(ATVI)$ $Roblox Corporation(RBLX)$ $Take-Two(TTWO)$

SOURCE: SEEKINGALPHA