What happened
Shares of Roblox (RBLX 1.35%) tumbled like a Jenga tower, after the online gaming platform reported November metrics that were below expectations. According to data from S&P Global Market Intelligence, said slowing growth caused shares to plummet 18.2% in December, and the carnage hasn't ended. With the new year, Roblox is down another 18% so far in January.
From its November peak to last Friday's close, the online game has given up 40% of its value.
Image source: Getty Images.
So what
Roblox began trading through a direct listing in March 2021 and had been one of the best performing IPOs of the year.
Seen as a play on the metaverse, or the virtual world where people can interact with one another as well as with companies, brands, and more, Roblox had been riding higher on steady growth as revealed in its quarterly earnings report. Its October numbers came in slightly ahead of analyst expectations.
However, when it released its November figures, although they showed continued growth, it was less than what Wall Street was anticipating. Roblox stock was already exhibiting weakness, having pulled back from those mid-November highs, but the news sparked a selling frenzy that sent shares lower all throughout the month.
The number of daily active users (DAU) came in at 49.4 million, up 35% year over year, and bookings are estimated to be between $208 million and $211 million, for bookings per DAU of $4.21 to $4.27. Because management said December's numbers are expected to be 80% larger than what Roblox saw in October and November, analysts are reading that to mean they will be coming down in the near term.
KeyBanc analyst Tyler Parker had been forecasting $800 million in fourth-quarter bookings but has since revised that lower to $780 million.
Now what
Like many gaming companies, Roblox is confronting the difficult comparables it faces from last year, when the pandemic had people stuck at home turning to video games for entertainment.
Once the economy reopened and more out-of-home activities were available, video game play stalled. Still, Roblox is seen as a good long-term growth play, and at least one analyst thinks Roblox may end up surprising the market when it reports December's metrics.
According to BTIG analyst Clark Lampen, his channel checks indicate that user registrations are jumping 30% from the year-ago figure, which he calls "impressive" post-COVID. He rates the stock a buy and has a $133-per-share price target on the stock, suggesting 58% upside potential in Roblox shares over the next year.
However, Roblox ended last week sharply lower, after Reuters reported that the online gaming company took down its app in China in early December because it was building a new one. Roblox has contended that China is particularly important to its future growth and had signed a partnership with Tencent.
