Sell Rating Issued for Roblox Amid Concerns Over Discovery Algorithm Manipulation and Inorganic User Activity

Analyst Doug Creutz from TD Cowen reiterated a Sell rating on Roblox (RBLX – Research Report) and keeping the price target at $40.00.

Doug Creutz has given his Sell rating due to a combination of factors surrounding the manipulation of Roblox’s discovery algorithm. He points to evidence suggesting that the algorithm is being exploited through illegitimate account creation, particularly in the Philippines and Indonesia. This manipulation has led to a significant increase in user activity from these regions, which coincides with the launch of the ‘Grow a Garden’ app, now the most popular experience on Roblox.
Creutz notes that the unusual user activity patterns, such as peak concurrent users aligning with daylight hours in these countries, indicate inorganic engagement. This raises concerns about the integrity of Roblox’s user metrics and the fairness of its discovery algorithm. Furthermore, Creutz criticizes Roblox’s management for not addressing these anomalies in their earnings call, instead choosing to highlight the fairness of their algorithm, which undermines their credibility.

In another report released on May 2, MoffettNathanson also maintained a Sell rating on the stock with a $44.00 price target.

Based on the recent corporate insider activity of 221 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of RBLX in relation to earlier this year.