Roblox (RBLX -0.41%) was finding success in growing revenue and daily active users even before the pandemic's onset. After the outbreak, those metrics surged. The company caters mainly to the younger generation, and when kids were sent home for remote learning, they looked to entertainment options there.

The reversal of that trend has worried investors, causing Roblox's stock price to crash by 76% off its highs. That has some folks asking whether now is a great time to buy stock in this metaverse pioneer.

A person wearing headphones and looking at an electronic device.

Image source: Getty Images.

A massive tailwind for Roblox

To understand the magnitude of the pandemic's benefit to Roblox, consider that in 2019 its highest revenue was in Q4 at $147 million. Compare that to 2021, where revenue surpassed $380 million in all quarters, peaking at $568 million in Q4. That's understandable. Parents felt safer letting their kids play with their friends virtually rather than in person when a potentially deadly virus was in circulation.

RBLX Revenue (Quarterly) Chart

RBLX Revenue (Quarterly) data by YCharts.

Even though the threat of COVID-19 remains, it has been reduced through widely available vaccination campaigns, readily available at-home testing, and antibodies from previous infections. These forces have allowed schools to reopen, extracurricular activities to resume, and more in-person play dates to be scheduled between parents. Of course, that means less time available for Roblox, and the company's metrics are starting to reveal this reversal of pandemic benefits.

In April, average bookings per daily active user were down by 25.5% year over year. Note that Roblox is free to join and use for the most part. The company makes money by selling an in-game currency called Robux. Purchases of this currency are recognized as bookings, which then turn into revenue as the player uses the Robux in the app. Therefore, a fall in bookings forecasts a slowdown in revenue.

That said, Roblox is still expanding its player base. Daily active users in April totaled 53.1 million, up 23% from the same month of the prior year. Over the past few quarters, the company has launched several innovative features, including spatial voice (simulating how loud a player sounds based on their proximity to another player) and layered clothing (allowing players to create 3D clothing for their avatar) -- driving user growth, engagement, and monetization.

Interestingly, Roblox only makes money from paying users, leaving a largely untapped opportunity to monetize the rest of its user base. Management is working on iterations to accomplish this feat. One significant opportunity could include showing advertisements to over 50 million daily active users. Marketers will undoubtedly covet the option to influence this highly engaged user base.

Indeed, the metaverse is yet in its infancy. It is unclear what the market potential could be at maturity. Roblox has a strong head start, a massive user base that can capitalize on network effects, and experience with incremental innovation.

Roblox stock is inexpensive

RBLX Price to Free Cash Flow Chart

RBLX Price to Free Cash Flow data by YCharts.

Roblox is not profitable on the bottom line, but it does generate healthy free cash flow. Measuring by its price to free cash flow, Roblox is close to as cheap as its ever been. Further, once Roblox enables the capability to sell advertising, it could unlock another level of revenue and cash flow expansion.

Admittedly, there is the risk of further deterioration if user engagement keeps falling in the near term. However, the reward for investors if Roblox becomes a dominant metaverse company is worth the risk in the near term.