Why Roblox stock is on fire

The weather isn't the only thing warming up in July. Roblox stock is surging as well.

Roblox stock is up 25% over the last month, including a 14% move higher on strong volume on Tuesday despite a broader market pullback, and have continued to trek higher as the week has raged on.

The metaverse gaming play has been one of the hottest tickers on the Yahoo Finance platform.

Analysts pin the move on a few factors.

"I think that part of it is that the third-party data that we have been hearing about all pointed to a really negative May, and that catalyst for the shorts has came and went,” Needham Analyst Bernie McTernan said on Yahoo Finance Live (video above). “Then the question is: What are you applying next? Really we think there will be improvement in the second half of the year as comparable [data] begins to normalize. We expect to be looking at high teens, maybe even low 20%, bookings growth into 2023.”

The news on Roblox has been far from rosy in recent months, sending shares down 62% year to date. The company has battled slowing growth numbers as consumers have ventured back outside with the COVID-19 pandemic easing.

To McTernan's point, daily active user growth moderated to 17% in May. Back in February, daily active users rose 28%. Engaged hours only rose 10% in May. Estimated bookings fell 9% to 11% in the month.

A man photographs a Roblox banner displayed, to celebrate the company's IPO, on the front facade of the New York Stock Exchange (NYSE) in New York, U.S., March 10, 2021. REUTERS/Brendan McDermidBut with financial comparisons becoming easier later this year, the Street may be sniffing out stronger financial updates from Roblox.

McTernan is also keen on Roblox better monetizing its user base by diving deeper into advertising and selling in-game products via a marketplace.

On top of that, he doesn’t expect a recession in the U.S. to be detrimental to the Roblox recovery story.

"Roblox specifically, monthly active users pay about $20 a month for the platform,” McTernan said. “So it's not a huge monthly expense for a household.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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