Roblox (RBLX 1.35%) is scheduled to report fiscal 2022 first-quarter earnings after the markets close on Tuesday, May 10. The metaverse pioneer sees engagement trends decline as kids return to school and economies reopen. The company thrived at the pandemic's onset as billions of people spent more time at home.
When it reports Q1 figures on May 10, it will be interesting to see if management's expectations have changed from the most recent update they provided investors. At that time, Roblox was forecasting that engagement trends would improve around the middle of the year.
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Players are decreasing spending on Roblox
Roblox is free to join and use. The company makes money by selling an in-game currency called Robux. The unique business model creates a gap between when players buy Robux and when the company recognizes revenue. Therefore, looking at bookings, which measure purchases of Robux, can be as important a metric as revenue in this case.
RBLX Revenue (Quarterly YoY Growth) data by YCharts.
Bookings exploded by 229% in the second quarter of 2020 for Roblox. Unsurprisingly, it coincided with the COVID-19 outbreak. The growth rate for booking has been consistently falling ever since, culminating at a rate of 20% in its most recently completed quarter, which ended Dec. 31. Interestingly, Roblox provides investors with monthly updates, and in its most recent update in February, it noted that bookings were down 3% from the same time a year earlier.
When accounting for the fact that it had 28% more users than at the same time last year, the average bookings level per daily active user was down 24.5% year over year. After surging during the pandemic, it's understandable that Roblox would give back some of the gains. However, what's worrying investors is the uncertainty about how much of those gains it will give back.
Management told investors they could expect year-over-year booking comparisons to start improving around May or June, acknowledging this concern. The company will be holding a conference call in the morning following the earnings announcement on May 11, and you can expect analysts to ask management for an update on this forecast.
What this could mean for Roblox investors
Analysts on Wall Street expect Roblox to report revenue of $639.46 million and a loss per share of $0.22. If the company meets those projections, it will represent increases of 26.7% and 52.2%, respectively, from the same period the year before.
RBLX Price to Free Cash Flow data by YCharts.
Moreover, the revenue increase would be the slowest growth rate in at least three years for the metaverse pioneer. In addition to the broader growth stock sell-off, the deceleration has hit Roblox's stock. Down 71% in 2022, it is trading at the lowest price-to-free-cash-flow ratio in years. Investors who can stomach the uncertainty in the short term can add Roblox stock to their list of stocks to buy, especially if management notes that engagement trends have improved.
