Needham analyst Bernie McTernan maintained Roblox Corp ( RBLX ) with a Buy and raised the price target from $60 to $72.

On Thursday, Roblox ( RBLX ) stock dropped after it reported fiscal fourth-quarter 2024 bookings growth of 21% to $1.36 billion, missing the analyst estimate of $1.37 billion. The video game developer reported an adjusted EPS loss of 33 cents, beating the consensus loss estimate of 0.44 cents.

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Roblox ( RBLX ) expects first-quarter bookings of $1.125 billion—$1.150 billion (versus the consensus of $1.14 billion).

McTernan assigned a 40 times fiscal 2026E adjusted EBITDA estimate to reach the price target, which contemplates ~10% multiple contraction from current levels.

Expectations were elevated coming into earnings, and the reported booking deceleration took some momentum out of the short-term bull case.

However, underlying trends were still strong with mobile and desktop growing +27% in December.

The analyst lowered his medium-term margin expansion assumptions to the low end of the multi-year guide as the company attacked its target of gaining a 10% share of the global gaming content market.

Since the results in the third quarter, bookings growth expectations rose significantly. Investors went from questioning the achievability of a 20% CAGR to a 25% or 30% CAGR. On a reported basis, this does not appear to be happening in the near term, with the company showing reported deceleration (relative to the third quarter) in the fourth quarter and guidance for the first quarter of +21% and +23%, respectively.

The 23% bookings guidance for the first quarter is still solid but faced elevated expectations (stock +74% since third-quarter results). The guidance does point to an acceleration in bookings in the first quarter, as a tough comparison weighed on reported fourth-quarter results.

While not as severe as post-COVID weekend vs weekday comparisons, mobile and desktop growth remained strong and was dragged down by prepaid and console, which did recover in December and January.

Management flagged that Mobile and desktop bookings grew +26% in the fourth quarter, including +27% in December, and Prepaid and console bookings grew +22% in December. Secondly, management provided an additional framework for their long-term bookings goals, reaching 10% of the gaming marketplace versus 2.4% now. Reaching this target is dependent on technology and the tools they can provide developers to penetrate additional genres.

The company noted some green shoots in new genres like shooters and sports, but it is still early. However, technology trends are on their side. Given the gross margin benefit, Roblox ( RBLX ) offers a better exchange rate to customers buying Roblox ( RBLX ) through a desktop rather than a console or mobile.

From a standing start, McTernan estimates a headwind to gross margin but estimates the break-even is ~7% of bookings need to move from mobile/ console to desktop to break even. From there, McTernan estimates that every 5% of bookings that move adds to the adjusted EBITDA by +9%.

McTernan’s adjusted EBITDA estimates for fiscal 2025E increase by +6% but are lower in fiscal 2026E and fiscal 2027E by -2% and -7%, respectively, as he now assumes less operating leverage and the company spends against its goals of gaining a 10% market share of the global gaming content market.

Price Action: Roblox stock is up 0.52% at $67.50 at the last check on Friday.

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