Shares of Roblox (RBLX +3.49%) have been on a roller-coaster ride of late due to the company's results for the first quarter of 2022. Bookings fell short of Wall Street's expectations and the loss per share was bigger than expected.
NYSE: RBLX
Key Data Points
The stock dropped more than 10% in extended trading following the release of the quarterly report on May 10. However, shares of the company that offers a platform for users to build, operate, and interact in three-dimensional virtual worlds jumped strongly over the next couple of days despite a visible slowdown in its growth trajectory. So, what led investors to scoop up stock in this potential metaverse winner, which has crashed 68% so far in 2022? Let's find out.
Roblox's bookings point toward a near-term slowdown
Roblox reported first-quarter revenue of $537 million, up 39% over the prior-year period. The company also saw a nice year-over-year increase of 28% in average daily active users (DAUs) to 54.1 million. What's more, Roblox engaged its users for 11.8 billion hours during the quarter, an increase of 22% over the year-ago period.
Although, the company's bookings during the quarter fell 3% year over year to $631 million, which was lower than consensus estimates of $655.7 million. Roblox's bookings refer to the amount of virtual currency -- known as Robux -- purchased by users to spend on virtual items such as accessories, outfits, and pets for their avatars. The bookings are recognized as revenue when users spend Robux on virtual items.
Image source: Getty Images.
Roblox's April bookings didn't paint a good picture either, as the metric fell 8% to 10% year over year to a range of $221 million to $224 million. The average bookings per daily active user were down 25% to 26% over the year-ago period to a range of $4.16 to $4.22. This slowdown in Roblox's bookings is a cause for concern as it points toward a slowing growth trajectory.
Analysts expect the company's bookings to increase just 3% in 2022, but its performance in the first four months of the year indicates that it could fall short of that target. Throw in the fact that Roblox's net loss increased to $160.2 million last quarter from $134.2 million in the prior-year period and exceeded the consensus estimate of $68 million by a big margin. Clearly, it wasn't surprising to see investors sell off the stock just after its results were released.
But Roblox stock's spike on May 11 indicates investors are focusing on the bigger picture. After all, analysts expect the company's bookings to increase more than 21% in 2023, and it won't be surprising to see it sustain that momentum in the long run given its prospects in the metaverse.
The big picture seems bright
The reason why Roblox's growth appears to be slowing down in the near term is that the company is lapping a period of terrific demand. The company's bookings shot up 161% year over year in the first quarter of 2021 as people staying at home amid the pandemic spent more time and money on its platform. The good part is that Roblox has managed to sustain its bookings level in a post-pandemic world.
The company's year-over-year comparables are expected to be challenging this year due to the outsize growth it logged last year. But the company's efforts to tap into the metaverse should help it step on the gas once again.
For instance, Roblox is looking to diversify its revenue stream with the addition of sponsored advertisements. It is developing a system that would allow developers and brands on its platform to reach more than 50 million monthly active users through advertisements. What's more, Roblox has also set its sights on advertising opportunities within the metaverse.
This could open a lucrative growth opportunity for Roblox as spending on 3D and mobile augmented reality advertising is set to increase 237% by 2025 to $6.7 billion, up from $1.9 billion in 2021. The good part is that brands are already jumping onto the metaverse advertising bandwagon. Spotify Technology, for instance, recently entered the metaverse with the help of Roblox. The virtual Spotify Island will allow users to buy artist merchandise and get access to exclusive content, among other things.
Nike, Forever 21, Ralph Lauren, Vans, and the NFL have already set up their digital presence using Roblox's platform. More companies can tap Roblox to make an entry into the metaverse thanks to its solid user base, especially considering this market is still in its early phases of growth and is expected to clock nearly 39% annual growth through 2030.
As such, investors looking to buy a metaverse stock for the long run may want to take a closer look at Roblox right now as it is trading at just nine times sales as compared to last year's sales multiple of 36.
