How will the Roblox stock play out in third quarter earnings?

Roblox’s [RBLX] share price has had a volatile Autumn. An October power outage on the platform has dented the stock, with the share price slipping 5.8% (through 5 November) over the past month. This dip could represent a buying opportunity in a company that could benefit from longer-term shifts in how we experience the online world.

Roblox is less a video games maker and more of a platform that allows users to develop their own virtual worlds - ie what is now fashionably termed a ‘metaverse’.

At the start of the year many investors would have rolled their eyes at the thought of something called the metaverse. Flash forward to the end of October and Facebook’s [FB] announcement that it is investing heavily in this area, to the point where it is rebranding itself as Meta and changing its ticker to MVRS, has certainly got investors’ attention.

Against this background, Roblox will post third quarter earnings. Shareholders will be looking to growing subscriber numbers, along with a response to Mark Zuckerberg’s plans to mooch in on Roblox’s territory.

When is Roblox reporting?

Monday 8 November.

What’s happening with Roblox’s share price?

Since its IPO at the start of March, Roblox’s share price has gained over 12%. Between 10 March and 2 June, the stock soared over 43%, rising from $64.5 to an intraday high of $103.29. And while the stock has slipped from that June high, since 11 October Roblox’s share price has actually rallied almost 19%. Should Roblox’s earnings impress, Friday’s close of $77.99 may represent a buying opportunity.

What could move Roblox’s share price?

BTIG analyst Clark Lampen initiated coverage of Roblox with a Buy rating in October, reports The Fly. Lampen’s $93 price target is one of the more bullish on Wall Street, with the analyst arguing that strong user growth and sign-ups could signal growth on a global scale. This makes international expansion  a key thing to look out for in the upcoming results.

In its last update, Roblox revealed that it had 48.2m daily active users, up 32% from the same time last year. While that’s no insubstantial number, what will worry investors is that Facebook is on the meta-scene with its installed base of 3bn users. Should even a fraction of those sign up to Mark Zuckerberg’s vision of the metaverse, then Roblox could be under pressure.

The Motley Fool’s Parkev Tatevosian points out that Facebook, or as it is now known ‘Meta’, plans to spend $10bn on its metaverse over the next few years. Roblox, on the other hand, made $454m in its most recent quarter. Still, according to Tatevosianm, there could be room on the virtual block for both companies.

“With more resources, Meta can attract the attention of developers looking for better economics for their efforts. Still, the surge in demand for developers could encourage more people to enter the field, which would benefit Meta and Roblox alike,“ writes Tatevosian.

Look out for Roblox’s management to outline their thoughts on the increased competition during the earnings call.

Investors should also watch out for any slowdown in Roblox’s ability to add new users to the platform. The lifting of most COVID-19 restrictions could see people looking for other ways to pass the time.

“The surge in demand for developers could encourage more people to enter the field, which would benefit Meta and Roblox alike” - Motley Fool's Parkev Tatevosian

What is Wall Street expecting?

Wall Street expects Roblex to post a loss of $0.14 a share, revenue is pegged at $636.53m, up 162.8% year-on-year. Is a beat on the cards? Roblox has missed Wall Street expectations for the past three quarters. In second quarter results, the company delivered a loss of $0.25 a share, well wide of predicted earnings of $0.23 a share.

Among the analysts tracking Roblox’s share price on Yahoo Finance, the stock carries a $89.89 average price target - hitting this would see a 15% upside on Friday’s close of $77.99. Of the nine analysts offering recommendations, six rate the stock a Buy and one analyst rates it a Strong Buy.