Shares of Roblox (RBLX 4.06%) were trading up 12.7% as of 11:03 a.m. ET on Wednesday. The popular gaming platform reported first-quarter results that missed estimates for adjusted revenue (or bookings), while also reporting a wider-than-expected loss on the bottom line. The post-earnings pop brings an end to a painful slide for shareholders in the last week, during which the stock shed over a third of its value heading into the quarterly report.
Worries over slowing growth and engagement on the platform have caused a sharp sell-off in the stock in recent months. It is currently 82% off its all-time high reached in late 2021 and down 40% over the last month alone.
It appears that after such a steep drop, value investors are starting to see opportunity to buy on the cheap. At its peak, Roblox traded at over 30 times revenue and over 90 times free cash flow, which is expensive.
After the sell-off, Roblox now trades at a more reasonable 7 times sales and 23 times free cash flow. While bookings fell 3% year over year, users are still highly engaged with games and other activities. Hours engaged were 11.8 billion, up 22% year over year.
The drop in bookings, however, means management needs to figure out ways to better monetize its users. The company believes adding older players over time will benefit bookings, since older users tend to spend more money than younger users.
Valuation obviously still matters. Great companies can be lousy investments if bought at the wrong price. But for shareholders who are wondering what to do now, there's no reason to panic. Roblox is not going anywhere.
It's still early days in the metaverse, and management continues to target 1 billion users over the long term. That is well above the 53 million daily active users currently on the platform. If Roblox continues to attract players, there will always be opportunities for user monetization and profitable growth.