This was a tough week for stocks focused on creating tech platforms for gaming content and online gambling. By the market close on Thursday, Roblox (RBLX 1.28%), Skillz (SKLZ 1.24%), and GAN Limited (GAN -1.32%) had each lost over 11% compared to a 1% boost in broader indexes, according to data provided by S&P Global Market Intelligence.
In Roblox's case, the stock remains in positive territory since its recent initial public offering.
Skillz and GAN are both down significantly despite surging demand in their businesses. The slumps all can be explained by regular volatility associated with these tech stocks.
None of the companies made negative business announcements in recent days. Instead, GAN came into the week with bullish momentum following its preliminary earnings report in early July. And Skillz is still benefiting from rising demand in the gaming niche, as demonstrated by its early May announcement of 92% sales growth in the fiscal first quarter.
Roblox, the biggest content platform of the group by far, is growing its user base quickly as of late May. But its expansion rate has slowed as people spend less time online thanks to waning threat levels from COVID-19.
None of those factors justify the type of valuation declines that shareholders saw this week. Yet GAN, Skillz, and Roblox still got caught up in the selling pressure that pushed several novel investment classes, including meme stocks and cryptocurrencies, down this week.
While these growth stocks are vulnerable to volatile price swings, returns will ultimately be determined by the companies' success (or failure) at meeting the high expectations that Wall Street has placed on them. That's why the bigger test will come over the next few weeks when the tech platforms announce their latest earnings metrics and issue updates on their 2021 forecasts.
Roblox's second-quarter report is due in mid-August and should show continued triple-digit revenue growth along with improving cash flow. Keep an eye on the pace of user declines in the wake of the pandemic.
Skillz makes its first Q2 announcement as a public company next month, too, and most investors are looking for sales to land at $88 million. GAN already gave investors a detailed preview of its Q2 report set for Aug. 16 and expressed optimism about its short-term growth prospects.
A confirmation of the bullish outlook these companies issued last quarter might help their stocks make up some of the recent lost ground, but for the time being the share prices will be vulnerable to the whims of traders, which can swing wildly from day to day. That's why shareholders shouldn't bank on volatility like this week's drop to end any time soon for Roblox, GAN, or Skillz.