Roblox (RBLX 1.93%) counts itself among a select group of stocks that ended up benefitting from the adverse effects of the coronavirus pandemic. The metaverse pioneer saw outsized growth, in part because millions of children were sent home from school for remote learning and didn't participate in after-school activities that were canceled.
Roblox is popular among the younger generation. It was no surprise that it experienced a surge of new signups, engagement, and revenue as kids suddenly had a lot more time available with fewer entertainment options.
Unfortunately, Roblox is now experiencing the reversal of that trend.
Economic reopening is decreasing engagement on Roblox
Roblox is free to join and use for the most part. However, certain items and experiences on the metaverse platform cost Robux, an in-game currency that you can buy with real money. Users who deposit money typically spend it over several months rather than in one burst. Therefore, an essential indicator of Roblox's revenue over the next few quarters is bookings -- the amount of Robux purchased by users in a given period.
Although the company's platform is available internationally, most of the money spent comes from the U.S. and U.K. These are two regions that are further along in reopening economies and bringing children back to school. Unsurprisingly, the reopening trends are leading to decreasing engagement on Roblox.
In its most recent quarter ended Dec. 31, engagement from the U.S. and Canada decreased by 11% from the same quarter the year before. The drop-off is more pronounced quarter over quarter when it fell from 3.02 billion hours engaged to 2.5 billion.
Moreover, daily active users (DAUs) fell by 1% year over year in the same region at the same time. Again, the fall is more pronounced from the previous quarter as it dropped from 12.2 million DAUs to 11.2 million.
As you might imagine, a decrease in engagement and users in its most lucrative region is causing a fall in deposits. Average bookings per DAU fell by 10% in the fourth quarter of 2021 from the same time the year before. That's an accelerated rate of decrease from the 2% year-over-year fall in the third quarter. Roblox also gave an update one month into its first quarter of 2022, when the rate of decrease in the metric accelerated further to 22.5% at the midpoint -- a troubling trend, to be sure.
When will Roblox return to growth?
It's important to remember that Roblox was a growing business on the same metrics discussed above even before the outbreak. The pandemic boosted growth to unsustainable rates, and they are now normalizing. Of course, there is a risk that people used Roblox so much during the pandemic that they are now getting bored of the platform and could permanently stop logging on.
However, the more likely scenario is that Roblox returns to growth after normalizing. Indeed, this is what management is projecting. Starting in the May to June timeframe, year-over-year bookings should improve.