Roblox (RBLX 3.39%) stock price plunged Tuesday in after-hours trading following its fourth-quarter and 2021 earnings announcement. The California-based gaming company fell short on its revenue and earnings estimates, leading to massive selling. That comes despite it also posting considerable growth.
Because it continues to post rising revenue and user numbers, investors should not assume it's game over for Roblox. However, following a massive sell-off, investors might wonder if the future of Roblox stock looks as bright as the future of the company.
Image source: Getty Images.
Roblox's earnings results
The company reported Q4 revenue of $569 million. That total was up 83% from year-ago levels, but analysts ( on a consensus basis) had expected $772 million. The $0.25-per-share loss on earnings for the quarter also came in well below the $0.13-per-share loss the analysts had anticipated.
The full-year 2021 results brought similar disappointment. Revenue of $1.9 billion surged 108% from 2020 results, but it fell well below the predicted $2.73 billion. Roblox's earnings per share (EPS) for the year was a loss of $0.97, falling short of the analyst forecast for a loss of $0.86 EPS. The company also stated that it would not issue forward guidance for future quarters.
Traders reacted negatively to this news, sending the entertainment stock's price down by about 25% since the release. Roblox had been showing signs of recovery after losing close to two-thirds of its value between mid-November and late January, falling to an all-time low since it began trading in March 2021. The post-earnings sell-off wipes out the gains it made since bouncing back from its record lows.
Additionally, the stock remains relatively expensive. Indeed, its price-to-sales (P/S) ratio of 16 comes in lower than that of peer Unity Software, which sells for 29 times sales. It also sells for a record low sales multiple. Still, with the company missing estimates and offering little clarity about the immediate future, the valuation could seem rich for some investors.
Where Roblox stands
Roblox has grown in popularity as a gaming and game creation platform, attracting close to 55 million users, up 32% since January 2021.
Users like that it is available on platforms ranging from smartphones to VR headsets. Also, creators turn to the Roblox forum because they can earn revenue for their game creations. To this end, the Roblox developer community earned $538 million in 2021, exceeding the company goal of $500 million. It also has attracted a young user base as about half of its users are 13 years old or younger.
These gaming-based applications have also boosted Roblox's popularity as a metaverse stock. Thanks to its creators, Roblox has become a building block of the metaverse as it can create avatars and spaces that populate this virtual world.
To this end, the platform experienced a huge growth surge as school closures gave kids more time to spend on the forum. Growth has continued despite school reopenings. The 4.2 billion hours users spent on the platform in 2021 was 26% above 2020 levels.
Where Roblox goes from here
Despite massive growth, Roblox stock faces near-term uncertainty. Aside from the post-earnings sell-off, shareholders will have to contend with a lack of forward guidance and a relatively high sales multiple.
Nonetheless, the platform continues to register massive revenue and user growth. Roblox also has a plan to win the metaverse, and though success is far from guaranteed, it can remain a growth name for some time to come. With the stock selling at a massive discount to its all-time high, growth stock investors may find an opportunity at these levels.
