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Roblox Dropped Big Today: Is the Stock a Buy?

By John Ballard – Updated Dec 15, 2021 at 3:52PM

Key Points

  • Average bookings per daily active user continued to fall in November.
  • The decline is attributed to tremendous growth in international markets where there is lower spending per capita.

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User monetization trends have weakened in 2021, but the sell-off might be an overreaction.

Earlier today, Roblox (RBLX 2.77%) released its November operating metrics update that left investors with a bad feeling about near-term monetization trends on the popular gaming platform. The stock was down about 10% in early trading and is now down 11.4% as of 1:57 p.m. ET on Wednesday.

However, there's no reason to panic. In fact, investors could look at the sell-off today as a buying opportunity.

Roblox corporate logo.

Image source: Roblox.

What seemed to spook investors was not so much the slight deceleration in growth of daily active users in November compared to October but the decline in average bookings (a non-GAAP measure of revenue) per user. 

The company's average bookings per user hit a peak of $17.30 in the fourth quarter of 2020 and has steadily declined to $13.49 in Q3. November's update showed this slide continuing, which could lead to the fourth straight quarter of declines in this metric when Roblox reports Q4 earnings early next year.

But that's not a reason to sell the stock. Management has credited the decline in average bookings per user this year to a shift in the geographic mix of its user base. In other words, daily active users are growing faster than it can monetize the wider variety of new experiences that have flooded the platform over the last year, particularly in regions where there is lower gross domestic product (GDP) per capita than in the U.S. In Asia Pacific, daily active users grew 75% year over year in Q3, much faster than the 6% rate reported for the U.S. and Canada.

Roblox's average bookings per user are still up 50% over the first quarter of 2019. At the recent investor day in November, management reiterated its long-term goal to reach 1 billion daily active users. This initial public offering (IPO) stock is delivering solid top-line growth and free cash flow, so I wouldn't throw in the towel after one monthly update. The long-term upside is too high not to remain patient with this one. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns and recommends Roblox Corporation. The Motley Fool has a disclosure policy.

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