Why Roblox Tumbled This Week

What happened

Shares of Roblox (NYSE: RBLX) have tumbled 15% from where they finished trading last week as of 1 p.m. ET today, according to data from S&P Global Market Intelligence, on no news specific to the game company. Rather, the move seemed related to the market's rotation away from previous high-flying tech stocks that performed well during the pandemic.

The online gaming platform primarily aimed at teens and tweens was helped by kids having an inordinate amount of free time available to play video games during the lockdown portion of the COVID-19 pandemic. Now with a sense of normalcy returning to many parts of the country, investors are expressing concern past momentum can't be maintained and are moving toward more stable stocks.

The stock indexes also approaching correction levels earlier in the week on fears of interest rate hikes and economic decline likely also contributed to the downward trajectory of Roblox's stock.

Kids using various mobile devices.

Image source: Getty Images.

So what

Interest in Roblox is still being driven by the potential it has for being a metaverse winner. It's already perfectly positioned to capture the growth in a virtual world where people can interact with one another, conduct business, and interact with brands because it already creates such environments for users of its existing game play.

Growth remains impressive even before the metaverse becomes a reality, though there are those who see that all as hype with little substance. Despite numerous companies creating these virtual worlds and some brands already buying real estate in this virtual landscape, it still requires convincing a critical mass of people that somehow a true virtual reality is actually better. It might not be the easy sell its proponents suggest.

Now what

Roblox doesn't need the metaverse to succeed, and its operations thus far show how well it's doing without it. A virtual extension of the current market would only be icing on the cake.

Wall Street has set a consensus one-year price target of $105 per share, which given its current price of just over $58 a share, implies upside potential of more than 78%. With analysts expecting revenue to grow tenfold by the middle of the decade, it seems the setback in stock price it's suffering now will be seen as an excellent buying opportunity looking back from the future.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Roblox Corporation. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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