Roblox (RBLX 3.83%), a gaming platform geared toward pre-teens, made its initial public offering (IPO) roughly two months ago. It will be reporting its quarterly financial statements for the first time as a public company on Monday, May 10. The company's IPO happened to come at an opportune time on the tail end of a year of robust growth for Roblox as kids were home from school and looking for something to occupy their time. That trend is reversing.
Schools in the U.S. have for several months now been returning more of their students to on-premise learning. That potentially presents a headwind for Roblox because it relies on engagement from its millions of pre-teen players to generate revenue. That's why hours engaged will be the one metric you will want to make note of when Roblox reports earnings.
Image source: Roblox.
Can Roblox keep players engaged?
The company defines hours engaged as time spent by users on the platform. Already, the metric began to dip in the fourth quarter of 2020 as some schools started bringing kids back for in-person learning. That's following a surge in usage to 8.5 billion hours from 3.7 billion hours at the pandemic's onset. Parents of school-age children tell me their kids often choose to log on to Roblox when they get a break from online classrooms during the day.
Signing up to the company's platform is free. Roblox generates revenue by selling digital currency called Robux that players can use on its platform to buy items and gain access to restricted areas. The more time players spend on Roblox, the more they see items they want to buy. As a result, developers are incentivized to create engaging areas and neat items that get kids to spend Robux.
In addition to spending less time at school during the pandemic, kids had been spending less time in extracurricular activities. All this has made more time available for them to spend on electronic devices at home, and Roblox has been a prime beneficiary. How players respond when alternate activities outside of the home are once again permitted will say something about the company's future.
Investors should also note whether management provides any commentary on shifting trends of its players.
What this could mean for investors
Analysts on Wall Street expect Roblox to report revenue of $533.7 million and earnings per share of $0.13. Still, investing in Roblox is more of a long-term story. Certainly, quarterly results give you insight into its progress, but more importantly, those interested in the company should focus on the long-term potential.
Roblox is trading at a forward price-to-sales ratio of 18, which is near the lowest level since its IPO but still not cheap. It may be prudent for those interested in starting a position to wait to get more information. After all, this is its first quarterly report as a public company.
