Kids flocked to the Roblox (RBLX 0.97%) application during the coronavirus pandemic. As schools switched to remote learning and most extracurricular activities were canceled, kids had much more free time to fill and turned to playing games on phones, tablets, and computers.
Since the start of 2021, several vaccines have been proven effective against the coronavirus, and over 2 billion doses have been administered. That's proving effective in bringing down infections, hospitalizations, and deaths from the virus. As a result, economies in some countries are reopening and restrictions on gathering in schools and businesses have eased, giving kids less time to play games at home.
Does that mean the pandemic boost is over for Roblox?
Roblox reports a decline in daily active users. Image source: Getty Images.
A surprise decline in players
The co-experience platform reports monthly results for its key metrics and on June 15, it reported a decrease in daily active users (DAUs) from the month before. DAUs fell from 43.3 million in April to 43 million in May. It was a startling development that sent share prices of the stock down by as much as 7%. Roblox was on a trajectory of rapid daily active user growth during the pandemic. Still, it should not have come as a total surprise, especially as U.S. states are quickly easing business restrictions and entertainment options increase outside of the home.
Further, the warmer weather means playing in the backyard, jumping in the pool, and going to the beach are viable alternatives to playing Roblox. The risk here is that over 50% of Roblox users are under the age of 13. As kids engage in various activities other than Roblox, there is a chance they'll forget about the app and disregard it altogether. Still, it's too early to come to that conclusion.
When looking at the daily active user total year over year, it shows an increase of 28% from last year. And hours engaged were up 9% year over year and 1% from April. Overall, Roblox is still on a growth trajectory, although the figures are moderating.
Keep in mind, there are parts of the world where COVID-19 is still not under control. Low vaccination rates and more infectious variants could lead the pandemic to last well into 2022, if not beyond. The virus is unpredictable, and just because it's been heading in one direction doesn't mean it will continue. While the boost from the pandemic for Roblox will not be as large, it will be around for at least a little while longer.
What this could mean for shareholders
Investors who counted on the pandemic-boosted growth rate to sustain for the long term were too optimistic. The sell-off after the monthly metrics release has brought Roblox stock to a forward price-to-sales ratio of 18.8, down from over 22.
Kids are notorious for obsession with something for a little while and then forgetting about it completely. However, this is just one data point, and too much should not be read into it. Investors should keep an eye on gaming trends and observe their direction over time. If the drop-off for Roblox accelerates over several quarters, then it could be time to evaluate your position in the stock.
