What happened
Shares of Roblox Corporation (RBLX -3.66%) were down 10.3% in March, according to data provided by S&P Global Market Intelligence. The stock was down almost 30% early in the month, as many analysts lowered their expectations for the company. However, the stock recovered a lot of ground starting in mid-March, which coincided with Roblox's management releasing user engagement metrics for February. So it's possible investors liked what they saw in the February data. That said, the market generally performed better in the second half of March compared to the first half. Therefore, better market conditions helped Roblox recover as well.
So what
For the most part, analysts weren't overly bullish on Roblox stock in March. Jefferies analyst Andrew Uerkwitz had previously set a price target of $60 per share for Roblox. But on March 10, Uerkwitz lowered their target to $50 per share, according to The Fly. And Uerkwitz wasn't alone. Analysts from Deutsche Bank, BTIG, and Needham also lowered their price targets for Roblox stock during March, weighing down the stock.
The majority of analysts seem to believe Roblox has an outsize opportunity for user growth in coming years but are worried about near-term underperformance regarding bookings. Roblox is a digital platform that hosts a variety of interactive experiences (games) and it has an in-platform currency called Robux. You use real money to buy Robux, and this transaction is recorded under bookings. But only when the Robux is used inside the platform can it be recorded as revenue.
On March 15, Roblox reported data for usage on its platform during February. As analysts had feared, bookings are currently taking a hit. Overall, February bookings were down 2% to 4% when compared to February 2021. The data won't be finalized until the company reports first-quarter results. However, Roblox has more daily active users than it did before. This means that bookings per daily active user fell a far more alarming 24% to 25% year over year.
Image source: Roblox Corporation.
Now what
While Roblox fell short with bookings, it excelled with user engagement. According to the same March 15 report, the company had 55.1 daily active users in February, 28% more than in the same month last year. Moreover, these users spent 3.8 billion hours using the Roblox platform, up 21% year over year.
Tying it all together, more Roblox users are using the platform more than ever but are spending less than they did a year ago. One could argue that it's more important to see people there and engaged. And it seems that's how investors are looking at it. If they're there, then Roblox can likely monetize them more down the line.
One final thought to consider: Roblox stock is now down over 60% from its all-time high in 2021. However, at its highs, it traded at a lofty price-to-sales (P/S) valuation of about 40. It currently trades at a P/S of about 13. While still a high valuation in absolute terms, perhaps investors are more comfortable with this price tag given the platform's increasing adoption. After all, it's much easier to generate positive shareholder returns from this lower starting point. And if Roblox can keep growing as it has, it may make March lows look like a bargain in hindsight.
