What happened

Shares of online video game platform Roblox (RBLX -3.10%) tumbled 5.1% in early trading Monday, as of 10:20 a.m. ET, as investors hedge their bets against a potential earnings disappointment later this week.

Roblox shares, which have been up and down all year, have been down more often than up in the run-up to earnings, falling 15% since hitting their most recent high two weeks ago. They're also down 47% over the past 52 weeks.

So what

Roblox warned investors last month that bookings were down roughly 7% to 10% per user in September. In the case of Roblox, "bookings" basically means customer purchases of Robux virtual currency, to spend later in the game (at which point these bookings become revenue).

This has investors thinking that the third quarter could be a rough one for Roblox. Currently, analysts are forecasting less than an 8% year-over-year improvement in revenue to $686.3 million (according to data from Yahoo! Finance). Worse, Roblox's losses are expected to more than double to $0.33 per share.  

Now what

How bad would this news be for Roblox, if it comes to pass when earnings arrive on Wednesday?

Well, obviously, rising revenue and declining earnings would not be a good look for Roblox. Value investors won't be happy with the lack of profits, and even growth investors probably won't be pleased with just a single-digit revenue growth rate (and the potential for a reversal, if revenue follows bookings down lower).

For that matter, free-cash-flow (FCF) fans like myself aren't entirely enthused about Roblox's current valuation of 80 times FCF. Turns out, 2021 may have been a high-water mark for Roblox's generation of cash profit because, even with revenue continuing to grow modestly, most analysts don't see Roblox surpassing its 2021 level of free-cash-flow generation until 2026.  

Long story short, there's a whole lot more risk than reward heading into Roblox's earnings announcement on Wednesday. Investors who are selling the stock today may have the right idea.