What happened
Shares of Roblox (RBLX 1.60%) weren't investors' play of choice on Tuesday. Compounding the awful drubbing most tech stocks took on renewed inflation fears, the online gaming platform operator was dinged by a negative analyst note from a prominent investment bank. Ultimately, Roblox closed the day almost 6% lower.
So what
That analyst is Morgan Stanley's Brian Nowak, who was reacting to the Roblox Developers Conference held last week. During that event, the company announced that it aimed to test immersive ads within its games for the remainder of this year.
Although Nowak generally welcomes this move, given the vast "unmonetized engagement" on the Roblox platform, he believes such a project could prove to be daunting.
In a new research note he said that "That said, too much advertising can be detrimental to the user experience (we have seen video game publishers be slow/reluctant to scale ads in the past) and we expect RBLX to continue prioritizing the engagement/immersion with the platform over potential monetization."
"Said another way, we expect the ad load ramp to be slow," he added.
Nowak continues to be cautious about Roblox shares. He currently has an equalweight (hold, in other words) recommendation on the stock, at a price target of $32 per share.
Now what
Although Roblox has a large, and frequently loyal, user base, it's having difficulty translating that popularity into profit. It remains well in the red on the bottom line despite revenue growth that has been impressive at times. We'll see if the new advertising initiative coalesces into a solid money-earner for the profit-hungry specialty tech company.
