Roblox Outpaces the Recent Rally in the Nasdaq 100

The sharp rally in Roblox Corp (RBLX) has inflicted pain on the stock's short-sellers, as Roblox has more than doubled since falling to a record low in May. According to data from S3 Partners, short sellers of Roblox have sharply reduced their short positions by purchasing 876,000 shares of the stock over the past 30 days. 

Shares of Roblox collapsed late last year by nearly 85%, falling from a record high of $141.60 last November to a record low of $21.65 in May.  The stock plunged as rising interest rates and the receding pandemic sparked investors to sell high-valuation technology stocks. However, the latest rebound in Roblox to a 6-month high last Thursday of $53.88 has the stock outperforming its peers and beating all members of the tech-heavy Nasdaq 100 Stock Index ($IUXX) (QQQ) since the benchmark index bottomed in June.

Roblox Corp designs a wide range of online games such as internet three-dimensional and tutorial games. Roblox’s game platform is aimed at preteens and teenagers who play games for free on the site.  The company earns revenue when users buy Robux, a virtual currency with which they make in-game purchases.  Wolfe Research has a hold rating on the stock, saying Roblox’s pandemic-driven growth is cooling off, and the metaverse is still at least five years away for the company.

Last week, Roblox reported Q2 bookings that missed analysts' estimates.  Yet, the stock still rallied as many analysts believe the Q2 miss was a near-term hiccup, with Morgan Stanley, Citigroup, and JPMorgan Chase raising their stock price targets after the results.  Cathie Wood’s Ark Investment Management sees Roblox as a big player in the metaverse, a digital world where users can socialize, play games, and conduct business.  As a result, Cathie Wood’s Ark Innovation ETF has steadily increased its position in Roblox, buying about 147,000 shares this month.

Most analysts covering Roblox remain bullish on the company’s long-term prospects, with 15 analysts giving the stock a buy rating, nine a hold, and two with a sell rating. The bearish case is that Roblox may never again see the growth it had when the world was locked down during the pandemic and that the metaverse may turn out to be a fad that fails to live up to the hype of its supporters. 

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