The recent market sell-off has been brutal, especially for a high-growth, unprofitable company like Roblox (RBLX 0.90%). After touching its all-time high of $141.60 in November, the stock has declined more than 75% as of this writing to around $34.
It did not help that Roblox reported a weak first quarter on May 10 with bookings falling 3% year over year. Still, investors might want to look beyond the headline number to get a holistic view of the latest results.
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Roblox's latest financial performance was uninspiring
The pandemic has been bad for business, with some exceptions -- Roblox is one of them. Locked away from school and work, users joined the gaming platform to pass the time. Consequently, Roblox's bookings more than tripled from $250 million in the first quarter of 2020 to $770 million in the fourth quarter of 2021. Revenue surged 251% from $162 million to $569 million in the same period.
But what was a tailwind turned into a headwind as global economies reopened. People tired of staying home got back to school, work, travel, and more. So Roblox reported one of its weakest quarters in the last few years to kick of 2022 -- bookings fell 3% (the only decline in the previous three years), and revenue grew "only" 39% (again the worst showing in the last three years). Net loss for the quarter increased 19% to $162 million.
Still, Roblox continued to report good cash flow, generating $156 million and $105 million in operating and free cash flow, respectively. It also exited the quarter with $3.1 billion in cash and equivalents, giving the company plenty of resources to invest in future growth.
Roblox is improving on critical metrics
Lower bookings, slower revenue growth, and a bigger loss are good reasons for investors to complain.
Yet I see positive signs the company is heading in the right direction. The first is on user engagement, and there are two strong signals here. First, daily active users (DAU) grew 28% year over year to 54.1 million. Hours of engagement also improved 22% to a new high of 11.8 billion hours. These metrics indicate that while some existing users spent less time (and money) with Roblox, they have yet to leave the platform entirely. Besides, new users continued to join its platform, propelling DAUs to a new record.
Another encouraging sign is that Roblox sustained its diversification efforts to grow users outside its core markets (the U.S., Canada, and Europe). For example, DAUs from the Asia Pacific region and the rest of the world grew 94% and 34%, respectively. Even Europe witnessed a 20% growth, which more than offset the 2% decline in the U.S. and Canada.
Roblox has a long-term goal of reaching a billion users, and the latest report shows it's still on track toward that ambitious target.
A quick word on Roblox's valuation
Since its IPO, Roblox has been a popular company among investors hoping to tap into the next big thing, specifically the metaverse, so its stock has always been pricey. At its peak, the company boasted a price-to-sales ratio of more than 40 times.
I have followed Roblox closely since it went public. While I like the company and its prospects, I was never comfortable with its high valuation. I could not convince myself to even buy a starter position -- the metaverse might be huge but not 40-times-sales huge!
But as Roblox stock has fallen -- the price-to-sales multiple is now below nine -- the thought of becoming a shareholder is much more appealing.
