Roblox's (RBLX -1.64%) growth hangover is in full swing. The digital entertainment platform that captured millions of new users through 2020 and 2021 just announced a second straight quarter of declining bookings. Other key financial metrics, including average revenue per user and free cash flow, were negative as well.

The news hit Wall Street with a thud, with the stock down immediately following the second-quarter announcement even after falling over 50% year to date. Let's take a closer look at whether the investing thesis might be broken on this formerly high-flying business.

The growth metrics

Roblox is still growing its platform. The level of daily active users expanded by 21% even compared to a nearly 100% spike a year ago.

Yet there are several warning signs that there is waning excitement among digital entertainment fans. Roblox lost users when compared to the previous quarter, a first for the business. And bookings, a key monetization metric, fell 4%.

Management highlighted the fact that engagement is still strong, with hours of play on the platform up 16% to 11.3 billion. "We are driving record levels of users and engagement globally as we execute on our innovation roadmap," CEO David Baszucki said in a press release. Still, it was discouraging to see that engagement figure fall, quarter to quarter and with growth slowing for a second straight time.

Financial struggles

Roblox is also ramping up spending at a time when many other growth stocks are cutting expenses. The company splurged on new hires, pushing personnel costs up 53%. Sales and marketing expenses jumped, too, in addition to research and development. The company shelled out over $80 million on new property and equipment.

All told, operating losses expanded to $170 million from $142 million a year ago. Roblox reported its first negative free cash flow figure as it burned through $57 million compared to a positive result of more than $100 million in six of the last seven quarters.

Time to sell?

It's hard not to look at those financial metrics and see good justification for the stock's decline so far in 2022. It would be one thing if management was spending freely on the business in ways that are clearly helping boost user and monetization growth. It is something else that this cash outflow is happening while bookings are declining and the user base is shrinking, quarter to quarter.

Investors can ignore most short-term noise around shifting demand trends. Bookings and average spending metrics improved in July, for example, implying a potential rebound ahead. But Roblox stock looks riskier right now as the company directs more cash toward unproven growth initiatives.

Sure, the metaverse platform might recapture its prior expansion path once digital entertainment trends rebound, as they appear to be doing for companies like Netflix. However, that rebound path isn't clear right now. Until Roblox can show either faster growth or a new focus on sustainable profitability, the stock is likely to stay under pressure.

Shareholders don't need to abandon the growth thesis, given that Roblox is entertaining over 50 million users each day. That engagement suggests there is a long runway for future gains ahead. It just appears that big strides on that user base, and on earnings growth, will take more time than it seemed just a few months ago.