Roblox's (RBLX 3.56%) stock closed at a record high of $134.72 last November. At the time, investors were so enthusiastic about the gaming platform company's growth potential in the metaverse that they valued it at $78 billion -- or 29 times the bookings it would generate in 2021.

However, that euphoria quickly faded as Roblox's bookings growth cooled off and its losses widened. Rising interest rates also drove investors away from unprofitable companies like Roblox that were trading at nosebleed valuations. As a result, Roblox's stock now trades at about $40. 

Many investors might have given up on Roblox after that steep pullback, but the company recently provided some updated growth rates for August during its investor day presentation on Sept. 15. Let's see what the bulls and bears will likely tell you about those numbers.

A lineup of Roblox's avatars.

Image source: Roblox.

What the bulls saw in Roblox's latest update

Roblox's gaming platform enables players to create, share, and monetize their own games without any coding knowledge. It experienced a major growth spurt during the pandemic as more children stayed at home, but its momentum faded in a post-lockdown world.

Over the past two quarters, Roblox's bookings, which gauge direct purchases of its in-game currency Robux, fell year over year. Its daily active users (DAUs) also declined for the first time on a sequential basis in the second quarter as its growth in engagement hours decelerated. 

Period

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Bookings

$662 million

$638 million

$770 million

$631 million

$640 million

Growth (YOY)

35%

28%

20%

(3%)

(4%)

DAUs (millions)

43.2

47.3

49.5

54.1

52.2

Growth (YOY)

29%

31%

33%

28%

21%

Average hours engaged (billions)

9.7

11.2

10.8

11.8

11.3

Growth (YOY)

13%

28%

28%

22%

16%

Data source: Roblox. YOY = year over year.

To the bears, that slowdown indicated that Roblox was a passing pandemic-era fad. But in July, its bookings actually rose 8% to 10% year over year, its DAUs increased 26% to 58.5 million, and its engagement hours grew 25%.

Roblox's investor day update indicated all three metrics were still rising. In August, its bookings rose 5% to 7% year over year (9%-11% in constant currency terms), its DAUs grew 24% to 59.9 million, and its engagement hours increased 18%. So unless it experiences a severe slowdown in September, Roblox's growth rates could broadly stabilize in the third quarter.

What the bears saw in Roblox's latest update

Those numbers were encouraging, but the bears will likely tell investors that its average bookings per DAU (ABPDAU) have still declined year over year for four consecutive quarters.

Period

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

ABPDAU

$15.41

$13.49

$15.57

$11.67

$12.25

Growth (YOY)

4%

(2%)

(10%)

(25%)

(21%)

Data source: Roblox. YOY = year over year. 

Back in July, Roblox's ABPDAU declined 12% to 14% year over year. During its recent investor day briefing, it revealed that its ABPDAU had fallen another 14% to 16% year over year in August. Therefore, its ABPDAU will likely decrease by double digits again in the third quarter -- and that drop could offset a large portion of its growth in DAUs and engagement hours.

Roblox mainly attributes that decline to its overseas expansion. Its DAUs in the U.S. and Canada, which accounted for 24% of its total DAUs last quarter, generate much higher bookings than its overseas DAUs -- but it's been struggling to gain new users in those two saturated markets. Therefore, the only way to keep expanding its gaming platform is to accumulate more DAUs in lower-revenue markets.

Roblox's bookings growth in July and August suggest it can maintain that balancing act, but there's still no clear way to narrow its losses -- which analysts expect to widen through at least 2024.

Is it finally safe to buy Roblox's stock?

Analysts currently expect Roblox's bookings to stay nearly flat this year at $2.73 billion, but potentially rise 17% to $3.21 billion in 2023 as it laps its post-pandemic slowdown. But at $40 a share, Roblox is still valued at $23.6 billion -- or eight times this year's estimated bookings.

That valuation is still too rich considering that other tech companies with higher growth rates are trading at lower price-to-sales ratios. Roblox's latest update indicates that it might just surprise analysts with stronger-than-expected bookings growth in the second half of the year, but its declining ABPDAU and widening losses will still make it a risky stock to own as interest rates continue to rise.