Short selling data can be a very useful risk management tool. Short sellers tend to be well-informed investors. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to look at the short selling data on Roblox. Roblox is a video gaming company that offers an online game platform and game creation system. Its mission is to build a human ‘co-experience platform’ that enables users to come together to play, learn, communicate, explore, and expand their friendships online. The company is listed on the New York Stock Exchange and currently has a market capitalization of $25.4 billion.
Roblox: Short Selling Data
Looking at the short selling data on Roblox, we see two major red flags.
The first is that there are many shares out on loan. At present, approximately 17.14 million shares are on loan. That represents about 40.6% of the free float.
The second red flag is that the number of shares on loan has increased significantly this year. At the start of the year, just 5.3 million shares were on loan. Since then, the figure has risen by 243%.
This tells us that short sellers have been ramping up their downside bets here recently, and that plenty of investors expect the stock to fall.
Why Are Short Sellers Targeting Roblox
As for why short sellers are targeting Roblox right now, it is most likely down to two factors – weak results and a high valuation.
In February, Roblox stock took a hit after both revenue and earnings for Q4 missed Wall Street’s estimates. For the quarter, revenue came in at $770 million, below the $772 million figure analysts had been expecting. Meanwhile, the company posted a loss for the quarter of $0.25, greater than the loss of $0.13 expected. Additionally, booking figures for January were weak, suggesting that the company is seeing a bit of a slowdown right now, after a period of strong growth during the pandemic.
Meanwhile, the company’s valuation remains relatively high. At present, analysts expect the group to generate revenue of $2.9 billion for 2022. That gives the stock a forward-looking price-to-sales ratio of about 10.
It’s worth noting here that since the company’s Q4 results, a number of brokers have cut their price targets for the stock. For example, Needham recently cut its price target to $60 from $83 to reflect current market conditions and lower booking estimates. Similarly, Stifel cut its price target to $65 from $90.
Given the high level of short interest here, we think caution is warranted towards the stock. The data suggests that institutions see risk to the downside.