What happened
Shares of Roblox (RBLX -0.74%) sank as much as 18.5% this week, according to data from S&P Global Market Intelligence. The online gaming platform posted third-quarter earnings results that disappointed Wall Street, leading investors to sell their shares in the days following. As of 1:16 p.m. ET on Friday, Nov. 11, the stock is down 11% this week.
So what
Roblox reported its earnings for the three months ending in September on Nov. 9. Earnings per share (EPS) came in at a loss of $0.50, which was worse than the $0.35 consensus analyst expectations. This loss, along with a trend toward negative free cash flow generation, is likely why investors have soured on Roblox stock at the moment.
But according to the rest of the report, Roblox's business is in good shape. Bookings (Roblox's revenue figure) hit $702 million in the period, up 10% year over year versus a tough pandemic comparison, beating analyst expectations. Daily active users (DAUs) were strong, hitting a record 58.8 million, up 24% year over year. Most importantly, hours engaged on Roblox were up 20% year over year to 13.4 billion hours in the quarter. Roblox makes money by taking a cut of every transaction spent on the entertainment options on its platform. The more people spend time on Roblox, the more likely they will become paying customers in the future.
Lastly, Roblox is seeing strong growth in its two most important areas: kids over the age of 13 and Asia. Hours engaged in Asia were up 20% year over year in the third quarter, and DAUs over the age of 13 grew 31%. Growth from these two segments will need to continue if Roblox is going to expand and become a dominant global gaming platform as opposed to historically when it was mainly for younger kids in North America and Western Europe.
Now what
Roblox is not profitable, but the company has a vast vision for the future and wants to eventually reach 1 billion DAUs on its platform. With the size of the video game industry (billions of players, hundreds of billions in annual customer spending), there is plenty of room to complete this vision if the team can continue growing its user base.
At a market cap of just $22 billion, Roblox stock could be a buy at today's prices if you believe in the company's vision.
