Bullish on Roblox? Bad news for you

Overview

Is it worth buying Roblox ($RBLX) stocks? What should you do if you already own Roblox stocks? Let’s start by providing a brief overview of the company. Roblox operates in the communication services sector and the entertainment industry. Having recently gone public at $62 per share, the company quickly moved from micro, small, and mid-cap categories to the Large category. Some may argue that the company’s growth is questionable due to its aggressive IPO pricing.

As of the article’s writing on 19/02/2024, the market capitalization stands at $28 billion. The company’s primary product is a platform for collaborative computer games and various interactions.

Issuer Quality and Rating

Roblox ($RBLX) manages to be one of the worst issuers in the Large capitalization category, with a rating of -33%. It also holds the title of the worst issuer among its peers in the industry, sharing this «honorable position» with $TTWO (Take Two Interactive).

Profitability

Based on the Q4 2023 report, the company’s revenue was $0.75 billion, while Operating Profit was -$0.3552 billion, and the net loss amounted to -$0.3237 billion. In 2023, there is a paradoxical situation with increasing revenue and a growing net loss.

While Roblox proudly displays Non-GAAP metrics on its investor page, the only indicators not embarrassing to showcase are Revenue and CFO:

• Net Profit Margin (NPM): -41%
• Earnigs quality CFO/NI: N/A
• Gross Margin 77%

Balance

The balance sheet situation is alarming.

The balance sheet situation is alarming. Despite the growth in assets, liabilities constantly increase, leading to a continuously shrinking capital, currently standing at $76.29 million.

• CFO/Debt: 0.45
• Current Ratio: 1.094
• Debt/Equity: 6.474 (!!!)

Efficiency

In this section, the numbers are not for the faint-hearted. Keep children away from screens and monitors:

• Return on Equity (ROE): -182%
• Return on Invested Capital (ROIC): -140%
• Financial Leverage: 37.18

Opinion

The video game industry is experiencing its decline, once a blue ocean turned into a red ocean, as evidenced by consolidations like ATVI and Blizzard, Microsoft (MSFT). Even a giant like Tencent acknowledged difficulties in development and a lack of promising projects.

However, Roblox presents a unique hyped story with a non-working business model. It’s a nail in the coffin, making game development so accessible that any teenager can create a video game, turning video gaming as a business into a complete farce. Significant lowering of entry barriers into the industry undoubtedly affects the quality of the final product.

And now, a moment of «dark humor» in the Risk Factors section of the official 10-Q Roblox document, several attractive points are mentioned:

• We have a history of net losses and may not achieve or maintain profitability in the future.
• Our financial condition and results of operations will fluctuate, making them difficult to predict and may not fully reflect our business’s underlying performance.

10-Q Roblox Risk Factors

The company is so frightening and cryptic that only the very brave would consider it for investment. Let’s take a look at the composition of ARKK fund by Cathie Wood, and guess what?

On that note, take care of yourselves and your money.