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The Ratings Game: The Roblox reality may not be ‘as grand as its vision,’ analyst says in bearish note

Roblox Inc. has big visions for its future, but one analyst isn’t sure they’ll pan out — or that they’re what investors want to hear about right now.

MoffettNathanson’s Clay Griffin initiated coverage of Roblox shares
RBLX,
+1.59%

with an underperform rating and $19 price target Monday, writing that Roblox’s current experiences are “lightweight and derivative,” one reason the company may be putting so much emphasis on its expectations for big opportunities in the metaverse.

“But in a market increasingly fraught about the here and now, Roblox seems to want to pivot the narrative to a distant and, in our view, rose-colored, picture of the future,” Griffin wrote. “And, of course, its expanded role in it.”

Shares of Roblox are off about 1% in Monday morning trading, though they were down as much as 6.3% earlier in the session.

Read: Is metaverse pioneer Roblox ready for fierce competition? This analyst doesn’t think so

Griffin expects “health growth” and a “reasonably good margin profile” for Roblox, but he’s “just not sure Roblox’s reality will be as grand as its vision.” He wrote that the company seems to be, at its core, a games platform, and said that though advertising could be a potentially “material” for Roblox, it’s still “too early to underwrite incredible success” with such efforts.

He noted that while Roblox has seen its valuation come down sharply in recent months, he also thinks that the shares “continue to carry at least some of the weight of expectations from the peak ‘Metaverse mania,’” back when “JPEGs of rocks andapes traded for hundreds of thousands of dollars,” a reference to the nonfungible-token (NFT) craze.

See also: Why Walmart’s leap into the metaverse could help Roblox

Roblox achieved a peak market capitalization of $78 billion on Nov. 19, 2021, according to Dow Jones Market Data, while its market cap would be $20.7 billion based on Monday’s intraday trading.

Shares of Roblox have lost about two-thirds of their value so far this year, as the S&P 500
SPX,
+2.59%

has fallen 23%.

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