Since this news broke this morning, RBLX has fallen below analyst Eric Sheridan’s price target of $28. Roblox isn’t the only company to be downgraded by Sheridan, but it has taken the biggest hit today. The analyst also sees growth slowing for Netflix (NASDAQ:NFLX) and eBay (NASDAQ:EBAY).
What’s Happening with RBLX Stock
RBLX stock has fallen more than 8% today since Sheridan issued his take. The stock rose early in the week, but has been declining since Wednesday. Despite its metaverse applications, Roblox has been on a downward trajectory for most of 2022. The stock has shed more than 75% of its value since February.
NFLX and EBAY have only fallen by 4% today. But both stocks have also been steadily declining throughout the past six months. What do all three have in common? According to Sheridan, they are all sensitive to the macroeconomic trend of consumers reducing their spending.
The Bears are Approaching
A quick look at TipRanks reveals that despite the stock’s rating as a “moderate buy,” Wall Street is not bullish on RBLX. Nick McKay of Wedbush gave it a “neutral” rating in May. More recently, Andrew Uerkwitz of Jefferies reiterated a fairly bearish “hold” rating for RBLX stock.
Roblox made headlines in late May when Morgan Stanley analyst Brian Nowak slashed his RBLX stock price target from $32 to $27. As InvestorPlace writer Shrey Dua reported, Nowak “warned of a potential bear case where the stock drops as low as $15 per share.”
Sheridan isn’t quite that bearish on RBLX stock, but his sentiment is almost as negative. As he sees it, Roblox benefitted from the lockdowns of the early Covid-19 pandemic, but is now facing strong economic headwinds spurred by a return to pre-pandemic trends. In a research note, Sheridan laid out the following:
“Compared to other video game companies within our coverage universe, Roblox saw outsized growth during the pandemic given its open-world platform and skew towards a younger demographic which is why we have heightened levels of concern around tough comps ahead (relative to the rest of the group).”
The analyst noted Goldman still sees Roblox as “the best-positioned company in the gaming/interactive entertainment [space].” But that clearly isn’t enough to keep it from rating the stock as a “sell.” The race to the metaverse hasn’t stopped, but Sheridan still thinks RBLX stock can’t get close to its 2021 peak of more than $100 per share.
The Bottom Line on RBLX Stock
Other experts, such as InvestorPlace contributor Tezcan Gecgil, also see a difficult road ahead for Roblox. She noted late in May that “Wall Street is concerned that management offers no timeframe for profitability. As the sales growth diminishes, not much positive news is likely in the rest of the year.”
The recent takes from Sheridan, McKay and Uerkwitz reaffirm Gecgil’s statement that Wall Street is concerned about Roblox’s growth potential. This type of bearish energy is likely to scare off perspective investors looking for metaverse and gaming plays. Roblox needs a significant catalyst to get back on track, and as Gecgil noted, there isn’t one in sight.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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