What happened
Shares of Roblox (RBLX 1.34%) were down 18.4% week to date through Thursday's close, according to data provided by S&P Global Market Intelligence. In its latest fourth-quarter report, the gaming platform posted decelerating growth in key operating metrics and issued a weak outlook for the year ahead.
On the surface, the headline numbers looked good. Revenue increased by 83% year over year to $569 million, and time spent on the platform grew 28% to 10.8 billion. But a deeper dive shows some problem areas.
Image source: Getty Images.
So what
The more important metric that analysts watch is bookings, a non-GAAP (adjusted) measure of revenue. Growth in this metric has decelerated significantly over the last four quarters, from 161% in the year-ago quarter to just 20% in the fourth quarter.
Declining growth in bookings reflects weak user monetization trends. Average bookings per daily active user fell 10% year over year, marking the third consecutive quarter of decelerating growth.
Now what
These are likely just near-term speed bumps, as Roblox laps spikes in demand a year ago. While bookings growth is slowing, it's important to remember that time spent on the platform is still above 10 billion hours, which is close to record highs for the company. Overall, the collapse in the share price can be blamed on valuation concerns.
A year ago, the stock traded at over 40 times trailing revenue, and now trades for a price-to-sales ratio of 14.3, which is still high for a business reporting decelerating growth rates. With management not expecting to reach normalized growth in bookings until the end of the year, this metaverse stock could still fall to new lows from current prices, so investors looking to go bargain hunting should be prepared.
