What happened
Roblox (RBLX 3.39%) shareholders lost ground to the market on Wednesday as the stock fell 11% by 1:15 p.m. ET, compared to a slight increase in the S&P 500. The slump pushed shares of the video game and digital content specialist deeper into negative territory; they are down over 60% so far in 2022.
It came as investors processed an unusually weak growth outlook from Netflix (NFLX -0.20%), another Wall Street favorite that has fallen out of favor recently.
So what
Netflix announced before the market opened that its growth hit a wall in early 2022, in part thanks to rising competition in the digital content space. The company forecast even worse results ahead in the short term and warned that it will not be able to boost profitability at the pace investors have come to expect over the last few years.
Image source: Getty Images.
Roblox doesn't compete directly with Netflix, but its business model relies on steady user growth and rising engagement hours and spending on its platform. Growth could be pressured by the same trends Netflix called out in its recent report, including soaring competition in the streaming content space, increasing price sensitivity, and sluggish economic growth in many markets.
Now what
Roblox in February warned investors to brace for decelerating operating trends as the world transitions out of earlier phases of the COVID-19 pandemic. That's a big reason why the stock has been lumped in with other formerly high-growth companies like Netflix that saw disproportionate sales gains in 2020 and 2021.
Most investors are still expecting to see revenue jump over 25% when Roblox posts its first-quarter earnings results on May 10. However, the main concern is that the digital content specialist will also describe a tougher operating environment ahead for the rest of 2022.
