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Roblox Downgraded to Neutral on Soft Third Quarter Outlook, Lack of Visibility, Wedbush Says

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Roblox Downgraded to Neutral on Soft Third Quarter Outlook, Lack of Visibility, Wedbush Says

Roblox (RBLX) has "near-zero forward visibility" as weakening player monetization triggered disappointing third-quarter guidance and the company withdrew its full-year outlook, Wedbush Securities said Friday.

The video game platform projected Thursday third-quarter bookings in the range of $1.58 billion to $1.65 billion, down 14% to 18% year over year. Analysts in a FactSet survey expect $1.72 billion.

The company reported bookings of $1.56 billion in the quarter ending June 30, up from $1.44 billion a year earlier and missing analysts' estimates of $1.60 billion.

The brokerage said Roblox's second quarter miss stemmed from decelerating monetization among under-13 users in North America rather than an expected user growth decline, even as daily active users and engagement hours met consensus market expectations.

"With this backdrop, we can no longer justify our positive stance here and are therefore downgrading to neutral," Wedbush Analysts wrote. The firm downgraded its rating on Roblox stock to neutral from outperform and reduced the price target to $40 from $65.

Shares of the company were down 27% in Friday afternoon trading and have fallen 56% this year.

Roblox recently shifted its discovery strategy with algorithms focusing on long-term user retention, Chief Executive David Baszucki said during the earnings call, according to a FactSet transcript. "We have seen this impact monetization, primarily in the US under 13 cohort, and this has been exemplified by a lower frequency of impressions with games that emphasize short-term monetization rather than long-term retention."

Chief Financial Officer Naveen Chopra said internal testing indicates long-term retention gains will "more than offset" the temporary hit to bookings.

"Monetization is soft while investment is rising, and beyond building better tools and incentives for developers to make more engaging, more monetizable 18+ content, much of the outcome is now out of Roblox's hands," Wedbush added.

Earlier this year, the video game platform implemented an age-check feature for accessing chat, and by the end of the second quarter, 57% of global daily active users had age-checked.

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