Roblox Corporation (RBLX.US), known as the "first metaverse stock," closed down 6.34% on Friday at $117.34. In response to this decline, Citi released a research report attributing Roblox's weak stock performance to two recent negative developments. First, Louisiana's Attorney General announced a lawsuit against Roblox. Second, media reports indicated that the recent banning of a user has angered portions of the Roblox community, including developers and users.

Citi stated that regarding the lawsuit, the firm is not concerned as it is limited to a single state. As for the user ban incident, there are currently no indications that this has affected platform activity. Therefore, Citi maintains its "Buy" rating on Roblox with a target price of $152. This target price represents nearly 30% upside potential from Friday's closing price.

On August 14, Louisiana Attorney General Liz Murrill announced a lawsuit against Roblox, alleging that the platform failed to implement basic safety controls, making it a "perfect place for pedophiles." Murrill stated: "Roblox is riddled with harmful content and sexual predators targeting children because it prioritizes user growth, revenue, and profit over child safety. Every parent should be aware of the clear and present danger Roblox poses to children to prevent unimaginable tragedies from occurring in their homes."

The longer lawsuit statement detailed the reasons for filing the case: "Because there is no minimum age requirement for registration and no need to verify age or obtain parental permission, users can easily lie about their actual age—allowing pedophiles to masquerade as children while children can bypass any age restrictions."

"After registration, users can access millions of games covering sports, role-playing, sailing, fashion, comedy, and various other genres. However, some games on the platform are not as harmless as they appear, such as 'Escape Jeffrey Epstein's Island,' 'Diddy Party,' and 'Public Bathroom Simulator: Vibe.' These games and other similar works often contain pornographic content and simulated sexual behavior, even including scenes of child group sexual assault."

Citi stated that while it considers this news a negative event, the lawsuit is limited to a single U.S. state. The firm believes the greater risk would be if the lawsuit expands to other states or is elevated to the federal level by the U.S. Department of Justice.

Additionally, on August 6, a Roblox content creator named "Schlep" (whose content mainly focused on catching sexual predators targeting children on the platform) posted a video stating he received a "cease and desist" letter from Roblox. On August 13, Roblox responded to the decision to ban this content creator, noting that the relevant user often created unsafe environments, violating the company's terms of use.

Citi pointed out that despite these negative developments bringing adverse effects and potentially causing stock weakness, the firm noted that concurrent user numbers (CCUs) from RoMonitor have not deteriorated. Therefore, the firm sees no negative impact on overall activity from the user ban.

Citi maintains its "Buy" rating on Roblox, believing that platform feature improvements and new developer experiences will continue to drive strong growth. The firm added that its target price for the stock corresponds to a higher valuation compared to the broader video game industry, reflecting the company's stronger growth relative to peers.