Roblox (RBLX 3.83%) and Coinbase (COIN 4.68%) were two of the market's hottest growth stocks last year. Roblox went public via a direct listing last March, and it started trading at $64.50 and surged to an all-time high of $134.72 last November. It now trades at less than $50.
Coinbase also went public through a direct listing last April. It started trading at $381, endured a volatile trading session before closing at $310 on the first day, and eventually closed at an all-time high of $357.39 last November. Today, the stock trades at about $90.
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Roblox and Coinbase both benefited from pandemic-related tailwinds. The use of Roblox's gaming platform skyrocketed as more children stayed home, while a stimulus-induced surge in speculative trading and rising cryptocurrency prices boosted Coinbase's trading volumes.
But over the past year, both companies struggled with decelerating revenue growth and widening losses in a post-lockdown world. Rising interest rates exacerbated that pain by driving investors away from speculative growth stocks. But could either of these battered stocks bounce back over the long term?
Roblox's momentum is fading
Roblox's gaming platform enables its users to create simple block-based games without any coding knowledge, share them with other users, and monetize them with in-game content to earn an in-game currency called Robux. This simple and self-sufficient business model drew a lot of younger users during the pandemic.
Roblox's bookings, which more accurately reflect underlying growth than its revenue by gauging direct sales of Robux, rose 171% to $1.9 billion in 2020 and grew 45% to $2.7 billion in 2021. However, bookings declined year over year in the first two quarters of 2022, and analysts expect total bookings to rise just 3% to $2.8 billion for the full year.
Roblox's engagement rates are also slipping. Daily active users (DAUs) grew 21% year over year to 52.2 million in the second quarter, but that represented a loss of 1.9 million DAUs from the first quarter. Average hours engaged increased 16% year over year to 11.3 billion, but that also marked a sequential decline of 500 million hours. Active users are also spending less money: Average bookings per DAU have fallen year over year for four consecutive quarters.
Roblox is trying to offset that slowdown by expanding beyond the U.S. and Canada, but that's a double-edged sword because it generates significantly lower bookings from international users. It's also pursuing older users to reduce dependence on its core market of fickle tweens, but that strategic shift could muddy its identity as a child-friendly gaming platform.
Meanwhile, Roblox's losses continue to worsen. Its net loss widened from $253 million in 2020 to $492 million in 2021, then deepened year over year from $274 million to $337 million in the first half of 2022. Analysts expect it to remain unprofitable for the foreseeable future.
Coinbase faces a crypto winter
As one of the largest cryptocurrency exchanges in the world, Coinbase is firmly tethered to the crypto market. Unfortunately, the market's waning interest in cryptocurrencies -- caused by tumbling prices, the failures of several high-profile coins, and the threat of tighter industry regulations -- has cast a dark cloud over its future.
Revenue rose 139% to $1.1 billion in 2020 and surged 514% to $7.4 billion in 2021. But this year, analysts expect revenue to decline 57% to $3.4 billion as it braces for the "crypto winter" that CEO Brian Armstrong ominously warned about in June.
For the full year, Coinbase expects average monthly transacting users (MTUs) to come in between 7 million and 9 million, which would represent a significant decline from 11.4 million average MTUs in 2021. It also expects average transaction revenue per user to plunge from $64 in 2021 to the low $20s as those remaining users place fewer trades.
As Coinbase's revenue growth decelerates, profits are collapsing. It expects to rack up a loss in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of about $500 million in 2022, compared to positive adjusted EBITDA of $4.1 billion in 2021. And that's even after it laid off 18% of its workforce earlier this year. Analysts expect it to stay unprofitable for the next few years.
The valuations and verdict
Roblox trades at 10 times this year's bookings, while Coinbase trades at seven times this year's sales. Neither stock is a screaming bargain yet, and both face daunting near-term challenges.
I wouldn't rush to buy either stock right now. But if I had to choose one over the other, I'd buy Coinbase because it has a clearer path toward a recovery if the cryptocurrency market stabilizes. Meanwhile, Roblox hasn't proved that its business model is sustainable -- or that it isn't merely a passing fad.
