Less than a month ago, two hot new stocks had their initial public offerings (IPOs). Gamemaker Roblox Corp. (NYSE: RBLX) and South Korean e-commerce firm Coupang Inc. (NYSE: CPNG) came public on consecutive days in early March on a rising tide of anticipation, and both delivered for a moment.
On Monday, Goldman Sachs initiated coverage on both stocks. The firm’s analysts started Roblox with a Buy rating and a 12-month price target of $81. Coverage of Coupang was initiated with a Buy rating, and the e-commerce company has a 12-month price target of $62.
First, a bit of not-very-old history.
Roblox’s IPO was first out of the gate, on March 10, and the shares soared to a first-day gain of 54%. The IPO was a direct listing with a New York Stock Exchange-set reference price of $45 a share and the stock opened at $64.50 before closing its first day of trading at $69.50. A week later, the stock posted its post-IPO high of $79.10. Last Thursday the stock closed at $67.34, down about 3% from its first-day close.
Coupang’s story is similar although it followed the traditional investment bank-backed IPO. The March 11 IPO priced at $35 and began trading at $63.50. Shares hit a high of $69.00 on the first day of trading and closed out at $49.25, its low price for the day. Last Thursday, the stock closed at $47.31, down about 4% since the IPO.
Roblox is perhaps unique in its focus on allowing its players to develop their own games. In Goldman’s view, that model supports “the creation & monetization of user-generated content [that] effectively allows RBLX to outsource game development costs to its creators while retaining the economic upside with a diversified portfolio of content, reducing hit-risk.”
Goldman forecasts a compound annual growth rate (CAGR) of 24% through 2023, with EBITDA margins expanding to 24.5% in 2024. That fast growth, driven by international expansion, high incremental margins, and rising profitability, “justifies a premium multiple relative to video game publishers, but a discount to pure gaming engines/platforms like Unity.” Goldman bases its 12-month price target on 19 times estimated bookings for the next 24 months.
Earnings per share (EPS) for 2021 are forecast at $0.29, rising to $0.47 in 2022 and $0.73 in 2023. Revenue is expected to rise from $1.88 billion in 2020 to $2.19 billion this year, $2.72 billion in 2022 and $3.55 billion in 2023.
Roblox monetizes its user base by selling its virtual currency, called Robux (R$), which can be used to enhance game experiences, customize a player’s avatar or acquire development resources. Developers are compensated in Robux that may be exchanged for real money or more Robux to spend on the platform.
On Monday, Roblox stock traded up about 6.7%, at $71.85 in a post-IPO range of $60.50 to $79.10. The consensus price target on the stock is $72.50. At the current price, the stock’s potential upside to Goldman’s price target is about 12.8%.
Coupang was among last year’s fastest-growing e-commerce players, sporting revenue growth of 91% after capturing around 50% of e-commerce growth in Korea. Goldman expects Coupang to double its market share from 14% to 28% by 2023. Korea’s e-commerce portion of the $565 billion total available market is valued at $269 billion. That translates to a CAGR for Coupang’s gross merchandise value (GMV) of 58%, among the highest of its global peers that average GMV of around 27%.
Goldman’s $62 price target is “justified given the company’s superior GMV growth profile as a dominant online shopping player in a market that is both stable and growing at a healthy rate. Coupang’s non-e-commerce value comprises about 50% of Goldman’s sum-of-the-parts analysis. Key risks to the price target are “competition, push-back from brands, and increased scrutiny from regulators owing to the company’s growing presence across multiple verticals over concerns of monopolistic behavior.”
Revenue last year totaled $11.97 billion, and Goldman estimates that to rise to $21.24 billion this year, $30.07 billion in 2022 and to $41.45 billion in 2023. The less good news is that Coupang is expected to post per-share losses in each of those three years.
Coupang shares traded down about 3.7% Monday to $35.57, in a post-IPO range of $41.41 to $69.00. Of three initiations on the stock, Goldman and Deutsche Bank rate the stock a Buy while Mizuho gave the shares a Hold rating. Goldman’s price target is the highest of the three, and the average target is around $52.70.