Roblox Asia User Growth Boosts Stock with Upgrade

Roblox's massive Asia user growth has turned the tide for the company, leading to an upgrade. The stock market is expensive, and investors need perfection to sustain rallies. Despite skepticism about big momentum plays, Roblox's growth is a notable exception, making it a worthwhile investment.

Roblox (NYSE: RBLX) has seen a significant boost in its user base in Asia, which has led to an upgrade in its stock rating. The company reported strong Q2 earnings, with bookings surging 51% year-over-year (y/y) to $1.44 billion, and daily active users (DAUs) growing 41% y/y to 111.8 million [1].

The Asia Pacific region, in particular, has been a key driver of this growth. DAUs in the region surged 76% to 35.6 million, adding 9 million new daily players [1]. This growth has been attributed to the success of games like "Grow a Garden," which became viral in June and has now hit over 20 million players [1].

Analysts have responded positively to these results. Wedbush's Alicia Reese raised her price target from $142 to $165, maintaining an Outperform rating. Needham's Bernie McTernan increased his forecast from $79 to $159, and Bank of America Securities' Omar Dessouky lifted his forecast from $133 to $159 [2].

Despite the positive outlook, Roblox's stock is still considered expensive, with a market capitalization of $95.52 billion at current post-earnings share prices near $138 [1]. However, the company's ambitious goal to capture 10% of the global gaming market, which is worth $180 billion, suggests that there is still significant room for growth [1].

Roblox's full-year bookings guidance for FY25 is $5.87-$5.97 billion, or 33%-37% y/y growth, and revenue is expected to grow at a 23% midpoint versus 20% previously [1]. Wall Street analysts are expecting $6.85 billion in bookings for next year, which is 16% growth versus this year's midpoint [1].

While Roblox's recent rally has rendered the stock quite expensive, the company's rapid user growth, particularly in Asia, and its ambitious market share goals make it a worthwhile investment for those willing to take on the risk. However, investors should keep a close eye on valuation as Roblox rallies.

References:
[1] https://seekingalpha.com/article/4807635-roblox-massive-asia-user-growth-turns-the-tide-upgrade
[2] https://www.benzinga.com/analyst-stock-ratings/reiteration/25/08/46801220/magnitude-of-robloxs-q2-beat-unexpected-says-analyst