Roblox shares surge after Cathy Wood takes stake: time to buy?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jun 17, 2021
  • Roblox shares on Thursday bounced back 2.16% after Cathy Wood bought additional shares.
  • Roblox said Tuesday, the May bookings fell 11% to $216M-$219M down from April, $242M-$245M.
  • RBLX stock is now down more than 15%, coming at the back of a 56% rally in May. Time to buy the pullback?

Roblox Corp (NYSE:RBLX) shares jumped 2.16% Thursday morning after Cathy Wood revealed she added to her stake in the company. The video game developer said on Tuesday after markets, bookings for May declined on a sequential basis. The news sparked an 8% decline On Wednesday.

Roblox is an exciting high-growth stock that is struggling to keep up with its high standards. But Cathy Wood’s ARK Invest sees the recent pullback as an opportunity to add to its stake.

Roblox growth prospects

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Roblox generates revenue from Robux purchases, an in-game currency that players use to access more features and restricted games. In the first quarter, revenue rose 140%, mainly benefitting from a 98% rise in engagement on a year-over-year basis. However, the company has experienced three consecutive quarters of engagement decline, a worrying trend for revenue growth prospects. 

As players spend little time on the platform, they are less likely to spend money on Robux. It creates a significant bottleneck in the company’s top-line growth. Therefore, Roblox faces the prospect of lower growth rates in its exciting growth story. It may need to find a way to maintain accelerated engagement growth rates for the coming quarters. 

On the flip side, this could be a sign of the size the company has grown. The bigger Roblox becomes, the less likely it is to post accelerated organic growth consistently. RBLX shares look expensive at a forward price-earnings ratio of 101.71. It raises questions over how promising the company is as a growth stock. Analysts estimate earnings will fall by 256% this year before increasing 3.18% next year.

Source – TradingView

Technical overview

Technically, RBLX shares appear to be trading in a descending channel formation in the 60-min chart. The stock bounced back on Thursday after slipping to oversold conditions on Wednesday. Investors betting on the rebound to continue can target profits at about $89.67 and $94.48. On the other hand, bearish investors can target more pullbacks at approximately $79.88 and $74.91.

Bottom line: RBLX current decline set to continue despite Thursday’s rebound

In summary, Roblox shares will extend the current rebound at the back of the news that Cathy Wood added to her stake. The video game developer earnings will decline significantly this year, according to analysts. It could potentially subject RBLX stock to more downward movement. Investors can capitalize on short-term pullbacks before the stock reaches the support level at $75.00.

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