Ticker Reports for September 16th
Palo Alto Analysts Drive it to New Highs: 50% Upside Is Possible
Analysts trimmed targets earlier this year as fears of platformization and freebies cut into the outlook for this cybersecurity stock. But that trend is over now, and positive revisions are the story.
MarketBeat has tracked 28 revisions since the Q2 results were released, and they say this stock will hit a new all-time high within the next 12 months. That is significant but more significant because of the technical price action accompanying it, which suggests a continuation of existing, long-term trends and potential for a 50% upside.
The Q2 results reassured the analyst community because the signs are strong that platformization is working to drive business and widen the margin. The takeaway is that 28 of the 42 analysts tracked by MarketBeat, or 65%, issued a revision, with 90% raising their price targets. The two outliers reiterated targets above the consensus.
The high number of analysts tracking the stock and the high number of revisions show a significant conviction in the rating and price outlook, which is bullish for the market. The consensus of 42 analysts implies a 5% upside for the market. The consensus of the revisions adds another 5% to it, and most of them lead to the high-end range. Nearly 70% of the revisions have this market trading above $387, which is good for an all-time high on this Moderate Buy-rated cybersecurity stock.
Palo Alto Networks Forms an Ascending Triangle: Break Out Imminent
The technical chart pattern aligns with the trends in analysts' sentiment. It shows an uptrend marred by correction, with price action heading higher now, supported by results and the resumption of positive revisions. The takeaway is that the market is tracing out a potential flat-topped triangle and is now on track to retest the critical resistance point. If broken, the triable will signal a continuation of existing trends and bring targets into play based on the magnitude of price movements leading up to the breakout. In this case, two projections are based on the 2023/2024 rally; they forecast price movements of $100 to $200, which give targets of $484 to $584 or potential gains ranging from 25% to 50% from the $385 resistance target.
Institutional activity also aligns with this outlook. For the last year, institutions have bought PANW stock on balance, with the balance of activity bullish in Q4 2023 and Q12024, turning bearish in Q2 and reverting to buying in Q3. Assuming that trend remains in place, the market for PANW stock has a strong tailwind to support it. The price action may fall back to the long-term EMAs or uptrend line, but institutions should step in to buy, and there are other forces supporting the market.
Palo Alto Networks was recently purchased by Marjorie Taylor Greene (R-GA), making the fourth purchase of PANW stock by a member of Congress this year. Other purchases include Nancy Pelosi (D-CA) in February and William R. Keating (D-MA) in January. The total purchased by Congress members is small but telling given the track record and increasing amounts of investor dollars allotted for tracking them: members of Congress tend to outperform the broad market, possibly because of insider knowledge of political drivers (and hurdles) to business.
Palo Alto Networks Has a Low Bar to Beat in FQ1
Analysts are raising their estimates for Palo Alto’s FQ1 results, but the bar is still low. The consensus forecasts a sequential decline and year-over-year gains to hold steady at 12% despite the 43% gain in next-gen technology and a 20% increase in Remaining Performance Obligations (RPO). This shows that platformization is working and business growth is re-accelerating. Assuming the Q1 results confirm this outlook, shares of PANW could break out of the triangle pattern before year end.
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Roblox's Growth Beyond Kids: Stock Set for Major Moves
Roblox Inc. (NYSE: RBLX) is a unique online platform with three main functions: a game-creation platform, a game-playing platform, and a social networking platform. Users can create games and monetize them with its user-friendly tools and resources using the Roblox Studio.
Users can also play the games created by other users and developers on the platform. Users can socialize and interact with each other through in-game chats, private messaging, virtual events, and groups. The combination of functions has helped accelerate its daily active user (DAUs) growth by 21% YoY to 79.5 million. Even more ambitious is its goal of reaching one billion DAUs.
Roblox operates in the computer and technology sector, competing with game engines and developers, including Unity Software Inc. (NYSE: U), Electronic Arts Inc. (NASDAQ: EA), and its top competitor among retro blocky character games Minecraft owned by Microsoft Co. (NASDAQ: MSFT).
Games Aren’t Just for Kids Anymore
Most of Roblox’s users are minors, which means it's the parent’s credit cards that are driving revenues. However, the demographic continues to expand to older age groups as more applications are developed for its platform, including interactive training, tours, and education programs.
The fastest-growing demographic is the 13-and-older group, which amounts to 58% of total users but grew at 26% YoY in the second quarter of 2024. Roblox is a metaverse with an in-game currency called Robux.
The company wants the platform to function as a metaverse where 80% of users come to play games, but the rest come to shop, consume entertainment, and socialize with each other.
Roblox Experiences Drive Growth
Like Alphabet Inc. (NASDAQ: GOOGL) YouTube, Roblox's content is mostly user-generated. In this case, it's the games and in-game products, including avatars, decorations, virtual clothing, perishables (1-time use items), and virtual environments collectively referred to as Roblox experiences. More and more brands are being attracted to the Roblox platform as 60% of its users are Gen Z. Major brands, including Nike Inc. (NYSE: NKE), Forever 21 and Gucci owned by Kering SA (OTCMKTS: PPRUY), attempt to engage with Gen-Zs and even Gen-Alpha’s through the platform through virtual stores and advertising.
Can Advertising Take Roblox’s Growth to the Next Level?
Roblox has recently pivoted to growing its advertising revenues by prioritizing immersive ads that blend seamlessly into the platform's user experiences. This includes:
- Immersive 3D Billboards: Dynamic billboards featuring the brand and products, along with interactive features, can be placed within the experiences.
- Portal Ads: These digital ads actually transport users to branded experiences on the platform.
- Video Ads: Immersive video ads appear in user-generated content. Roblox launched third-party adtech platforms like Pubmatic Inc. (NASDAQ: PUBM) and Integra Ad Science Holdings Co. (NASDAQ: IAS).
Major Brands Are Launching Virtual Stores in the Roblox Metaverse
Advertising is currently a tiny sliver of revenues, but the company expects its initiative to help it become a growth contributor by 2026 to 2027. The company has also been testing its shopping experiences to drive commerce revenue by having real-life employees from major brands, including Walmart Inc. (NYSE: WMT) e.l.f. Beauty Inc. (NYSE: ELF) and IKEA manage and operate virtual stores on the platform.
Leveraging Its Developers
Roblox is leveraging its developers and content creators to help generate more revenue by incentivizing them with higher splits on their sales. Its Creator Affiliate Program lets developers monetize their non-Roblox audience by signing up for Roblox to earn commissions. Furthermore, Roblox has partnered with Shopify Inc. (NYSE: SHOP) to enable real money transactions, enabling developers to earn cash for their products instead of having to convert Robux into cash.
Top-Line Miss and Lowered Guidance Caused Stock Drop
Roblox shares dived after the company reported its Q2 2024 EPS of a loss of 32 cents, which still beat consensus estimates by 7 cents. Revenues exploded by 31.2% YoY to $893.5 million, coming in shy of the $897.88 million consensus estimates.
The nail in the coffin was its downside guidance for Q3 2024 revenue to be between $860 million and $885 million versus the consensus of $967.08 million. Adjusted EBITDA is expected to be between $22 million and $42 million.
Even worse was its full-year 2024 downside guidance for revenues of $3.49 billion to $3.53 billion versus $4.08 billion consensus estimates. Adjusted EBITDA is expected to be between $92 million and $132 million, with free cash flow between $505 million and $535 million. This caused shares to fall 12% in the following days to a low of $35.30. However, investors piled back into the stock shortly after.
Roblox Developers Conference Stimulates Sentiment
On Sept. 5, 2024, the company hosted its 10th annual Roblox Developers Conference to unveil new products and provide business updates. The company stated that it wants 10% of gaming content revenue, which can be achieved once Roblox hits 300 million DAUs. Roblox also announced it will introduce premium games on its platform with developers keeping up to 70% of the revenue split. Next year, Roblox will enable eligible creators to sell their physical merchandise directly within their experiences using various e-commerce platforms, including Shopify.
RBLX Stock Triggers Another Bull Flag Breakout
A bull flag occurs when a stock rises through the parallel descending upper trendline resistance, which forms after the flagpole peaks.
RBLX initially formed its first bull flag breakout after falling to the $35.30 low following its Q2 2024 earnings results and lowered guidance. RBLX managed to stabilize and trigger the bull flag breakout through the $38.15 Fibonacci (Fib) resistance. RBLX reached the $44.40 consensus price target, where it peaked and formed another flag. The second bull flag breakout triggered upon breaking out through the $43.65 fib resistance. The daily relative strength index (RSI) has continued climbing through the 70-band. Fib pullback support levels are at $43.65, $41.04, $38.15, and $36.14.
RBLX’s average consensus price target is $44.40, and its highest analyst price target sits at $56.00.
Actionable Options Strategies
Bullish investors can buy on pullbacks using cash-secured puts at the fib pullback support levels to buy the dip and write covered calls to execute a wheel strategy for income.
A Poor Man’s Covered Call (PWCC) strategy is a less capital-intensive way to enter a position and collect income by buying deep-in-the-money (ITM) back-month calls and selling out-of-the-money (OTM) front-month calls.
Central Bank Ditches U.S. Dollar
Startling new evidence shows the U.S. Central Bank is abandoning the currency we've relied on for centuries – the United States Dollar…
And placing a 'quiet bet' on a new type of currency…
Gold.
Congress Members Are Buying These 3 Hot Stocks
Tracking congressional trading habits is becoming more critical every day. Not only do members of Congress tend to outperform the broad market, but there are an increasing number of products tailored to this strategy. Among them are ETFs like the Unusual Whales Subversive Republican Trading ETF (BATS: KRUZ) and the like-minded Unusual Whales Subversive Democratic Trading ETF (BATS: NANC), whose ticker symbols evoke imagery of Ted Cruz and Nancy Pelosi, two well-known congressional traders. The focus today is the three most actively bought stocks by Congress people over the previous 90 days.
Nancy Pelosi Buys NVIDIA
NVIDIA (NASDAQ: NVDA) is the stock most bought by Congress members this summer. MarketBeat.com tracks seven transactions by five members, including Nancy Pelosi. Members from both parties are buying, with total purchases estimated at just over $6 million. Pelosi made her purchase in June and July and is likely showing a loss in mid-September; she also made the largest investment. The other members purchased in July, August, and early September, with Republican Marjorie Taylor Greene making three purchases in late August and early September.
Members of Congress are buying NVIDIA because they know it is the leading supplier of AI-centric GPUs and the software and services to support them, which is what matters. Other GPU manufacturers have competitive products but do not have NVIDIA's full-stack support and infrastructure built, including CUDA, which is the bit that makes its GPUs work so well for AI. The takeaway is that NVIDIA will continue to be in high demand as next-gen data centers like Oracle’s are built out. An expanding addressable market will be among the drivers for NVIDIA over the next year. Coincidentally, members of Congress have a say about which countries can buy NVIDIA’s most advanced chips.
NVIDIA has significant support from the broad market and is likely to continue trending in Q4. Not only are institutions buying on balance, but analysts continue to lead the market higher, and retail interest is high. The stock is rated as a Moderate Buy by 42 analysts, and recent activity includes numerous increased price targets. The consensus is up 20% from mid-June to mid-September, implying a 20% upside for the stock price.
Broadcom Is Another Hot Chip Stock Bought by Congress
Four members of Congress, including Nancy Pelosi, bought Broadcom (NASDAQ: AVGO) in five transactions this summer. The estimated net is roughly $3 million, with Pelosi making the largest transaction. Senator Shelly Moore Capito (R-WV) made two transactions, buying the semiconductor stock in early July and the other in late August.
Among the drivers for its stock price are its accelerating growth in 2024, the outlook for sustained double-digit growth in 2025, and the capital return. Growth in 2024 is driven by demand in all segments, led by triple-digit gains in the Infrastructure Software business. Growth in 2025 will be supported by AI demand, including an Apple upgrade cycle.
Congress Members Insure Their Portfolios with Chubb
Three members of Congress bought Chubb Limited (NYSE: CB) four times for a total investment of nearly $100 thousand. The investment is small compared to NVIDIA and Broadcom but no less significant given Chubb’s history. The history includes consistent growth, healthy cash flow, sustainable capital returns, and an upwardly trending stock price. It also contains a low beta of 0.39, which indicates extremely low volatility relative to the S&P 500. The S&P 500 is still in an uptrend but has entered a period of consolidation marked by increased fear, so portfolio protection is a good idea.
Chubb is a Dividend Aristocrat, another factor that speaks volumes to investors. Dividend Aristocrats have increased their dividend distribution annually for at least 25 years. A 25-year history of distribution increases is hard to achieve because of the time involved and business cycle risks. The takeaway for inventors is that Dividend Aristocrats are proven reliable dividend stocks, and this one has a robust outlook for sustainability. The payout ratio is a low 16%, with the distribution growth rate trailing earnings growth, a dynamic that ensures distribution growth can continue for another twenty-five years.
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