By Sam Boughedda
Reacting to the announcement on Friday at the Roblox Corp (NYSE:RBLX) Developers Conference that the company plans to test Immersive Ads with a small number of brands and content creators during the remainder of 2022, a Morgan Stanley analyst said they think the execution will be challenging.
Morgan Stanley has an Equal-Weight rating and a $32 price target on Roblox shares.
"We see a $670mn '24 Revenue Opportunity, With User Experience and Advertiser Adoption the Key Gating Factors: At a high level, there is a significant opportunity to advertise on RBLX, as it has ~60mn DAUs spending ~2.5 hours per day but just ~1% daily payer conversion, i.e. there is a glut of 'unmonetized' engagement," explained the analyst.
Adding: "That said, too much advertising can be detrimental to the user experience (we have seen video game publishers be slow/reluctant to scale ads in the past) and we expect RBLX to continue prioritizing the engagement/immersion with the platform over potential monetization. Said another way, we expect the ad load ramp to be slow."
In addition, the Morgan Stanley analyst pointed to execution challenges such as tools that deliver targeting and performance, the ability to prove and scale ad performance, and privacy.
Elsewhere, a BTIG analyst maintained a Buy rating and $58 price target on Roblox ahead of the company's investor day.
He told investors that through 9/11, they're seeing a slight downtick in sign-up trends, and unlike August they are likely to also see some m/m downtick in existing user engagement.
"Ultimately, we expect the direct payoff from many of the product and experience initiatives (more detail in the body of our report) to be improving Bookings/Hour trends," stated the analyst. "Looking forward, we expect this week's investor day will touch on many of those same topics, but with a focus on how their launch/expansion can contribute directly to both Bookings and earnings."
Roblox shares are down more than 4% Tuesday.