Shares of Roblox (RBLX 2.90%) shed more than a quarter of their value after the video-game developer's fourth-quarter report fell short of investors' lofty expectations.
Is Roblox's battered share price a sign of more pain ahead for shareholders? Or could it represent an attractive buying opportunity?
Count Benchmark analyst Mike Hickey among the bears. Hickey has a sell rating on Roblox. He cautions that the game platform's growth accelerated during the pandemic as coronavirus-related restrictions kept millions of kids indoors. But now that most of those restrictions are lifted, children are back at school and resuming their traditional outdoor activities. Roblox's growth could thus decelerate markedly, as we saw in its fourth-quarter results.
Further, Hickey is concerned about Roblox's ability to protect children in its virtual worlds. "We are not convinced that Roblox offers a safe play environment and worry over the potential for child abuse," Hickey said.
However, Stifel analyst Drew Crum has a more positive view of Roblox's prospects. He sees its share price more than doubling to $110, fueled by the platform's powerful network effects.
Roblox's burgeoning developer community is creating more virtual experiences for players to enjoy. This makes its platform more valuable to existing users and entices new players to join. Those additional players, in turn, make the platform more attractive to developers.
Crum expects this virtuous cycle to boost player engagement -- and, by extension, Roblox's ability to monetize its network -- over time.
So, is Roblox stock a buy?
As one of the purest plays on the build-out of the metaverse, Roblox's growth potential is clear. But the risks to children on its platform are real and must be addressed. Parents who are uncomfortable with the potential for abuse will not let their children play on Roblox, which could crush the company. These risks also likely make Roblox's stock too risky for many investors.