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Is Stifel Bullish Enough on Roblox After Red-Hot IPO?

Roblox Corp. (NYSE: RBLX) has seen a recent run-up in its stock price since it came public last week. The company originally priced its shares at $45 for the initial public offering, but it was much more explosive than that. Cathie Wood also contributed to some of the frenzy surrounding the stock.

While the underwriters are still in the quiet period, one analyst has issued a very bullish call on the stock, even considering the IPO jump. Stifel initiated coverage with a Buy rating and an $85 price target, implying upside of 17.8% from the most recent closing price of $72.15.

Roblox is an online platform, uniquely positioned at the intersection of content and social, two “viral loops” that provide a mutually reinforcing network effect, and together should drive higher engagement and hence monetization. Stifel believes that the digital content creation and usage have emerged as one of the most popular forms of entertainment, which combined with Roblox’s large and growing ecosystem of users (over 30 million) and developers (over 8 million), bodes well for the company.

According to Stifel:

The company has a recent history of impressive growth, with DAUs, hours engaged, and bookings increasing at CAGRs (2018-20) of +65%, +80%, and +94%, respectively. To sustain this momentum, Roblox has a multi-faceted strategy to achieve a goal of “impacting” billions of users. And while we consider such initiatives in our model (i.e, international reach and age demographic expansion), none are fully contemplated. In fact, our illustrative analysis for 2022 implies a range of outcomes with incremental bookings of $1.035 billion-$2.232 billion (vs. Stifel 2022E at $2.807 billion), suggesting meaningful upside, all else being equal.

The brokerage firm’s estimates assume a bookings compound annual growth rate (2021 to 2023) of +28%, among the fastest rates of growth across Stifel’s coverage universe. This also assumes modest declines during the second half of 2021 (−10%) as the business laps tough comps, followed by a re-acceleration for 2022 to 2023 (average approaching +30%) with international growth plus age diversification serving as key drivers.

Roblox stock traded up 4% on Tuesday to $74.95, in a 52-week range of $60.50 to $77.78. The consensus price target is $72.50.