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Roblox Q2 Earnings Preview: Will School Reopenings Affect Engagement

By Parkev Tatevosian, CFA – Aug 15, 2021 at 6:41AM

Key Points

  • Analysts on Wall Street expect Roblox to report revenue growth of 24% in the quarter.
  • Investors will want to see if the company reversed losses in monthly active users from its previous update.
  • Over 50% of players on Roblox are younger than 13.

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The gaming platform company will report second-quarter earnings results on Monday, Aug. 16.

Roblox (RBLX 0.53%) is rapidly growing customers and revenue. The company offers a co-experience platform that is popular among kids younger than 13. Since millions of them have been learning remotely over the past year, it has been a boon for Roblox. 

Later in August, schools will be bringing back children for in-person learning. That has the potential to decrease engagement and sign-ups for Roblox's online gaming platform. As a result, investors will listen closely to management's discussion about how reopening trends affect the company when it reports second-quarter results on Monday, Aug. 16. 

Two kids looking at a tablet screen.

Image source: Getty Images.

All eyes will be on daily active user totals

Roblox updated investors on some important metrics in June. That update showed a decrease in daily active users (DAUs) from April to May, going from 43.3 million to 43 million. Meanwhile, revenue growth remained high, at an estimated 123% to 126% from the year before.

Investors will be focused on DAUs in the upcoming report to see if a declining trend is evolving or if the drop in May was a one-off event. A further decrease could spook investors by creating uncertainty about how long the trend could last. If user engagement starts to fall before kids return to school, the decline could worsen when they are actually back in class. 

Importantly, before the pandemic onset, Roblox boasted 19.1 million DAUs, a figure that more than doubled during the pandemic. Still, the company was growing DAUs at a roughly 50% year-over-year clip before the outbreak.

But that was off of a much smaller base. Management discussed how quickly the company grew: "When the pandemic started, we immediately saw engagement go up. We had a substantial user base at the time, who immediately had more time and spent more time on the platform, then we grew users very quickly."

The question remains: Will that rapid growth reverse just as rapidly as economies reopen and children return to school? 

What this could mean for investors 

Analysts on Wall Street expect Roblox to report revenue of $690 million and earnings per share of $0.23. If it hits that revenue estimate, it would be an increase of 245% from the $200 million it reported in the same quarter last year. Clearly, analysts are expecting continued growth. If there is to be a pullback, they are not expecting it just yet.

Interestingly, 60% of Roblox players are younger than 13. Over the long run, Roblox has an opportunity to expand its player base by making the platform more attractive to an older demographic. That's one way the company can expand in the aftermath of the pandemic.

The stock is trading at a forward price-to-sales ratio of 17.9, and its excellent growth prospects could already be priced into the stock. Given its expensive valuation and lofty expectations for this quarter's results, it may be prudent to wait until after earnings are released before you consider buying the stock. That way, you have more up-to-date information to use in evaluating your purchase. 

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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