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Needham analyst Bernie McTernan reiterated Buy on Roblox Corp RBLX and cut the price target from $47 to $39. The -5.7% bookings miss relative to the analyst’s expectations resulted from DAU and ARPU miss

After lower sequential growth in October ’22 relative to ’21, the analyst thought November could hang in better, which did not happen.

The analyst expects December to experience its standard seasonal uplift with a +75% growth MoM, which brings the analyst’s new 4Q22 bookings estimate to -3% below the prior estimate and ~3% below unadjusted consensus.

Over the past few months, while DAU growth has slowed, hours per DAU have also slowed, causing aggregate hours growth to dip into the HSD YoY for the first time in over a year. Also, YoY hours per DAU growth in November was the worst result in over a year when RBLX was comping COVID. 

On monetization, bookings per hour are growing but decelerated in constant currency in November.

With interest rates rising, causing investors to shift the goalposts on the balance of growth vs. profitability, RBLX seems to be one of the few holdouts to continue investing heavily in its TAM and future growth, given its $3 billion of cash and positive adjusted EBITDA.

However, as fixed cost growth stays ahead of bookings growth, it creates a problematic near-term environment for shareholders.

The lower-than-expected November results caused the analyst to cut bookings and adjusted EBITDA estimates. 

Engagement deceleration trends (hours per DAU) are a rising concern. These disappointing results are in the context of the company continuing to spend heavily against its long-term goals, a luxury given its cash balance and positive margins. 

Given the changing goalposts in the equity markets, McTernan thinks the stock needs bookings to reaccelerate or advertising to have a more significant impact near-term.

Price Action: RBLX shares traded lower by 3.76% at $26.86 on the last check Friday.

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