What happened
Shares of gaming platform Roblox (RBLX 0.62%) plunged way more than the market on Thursday morning after the company announced some important business metrics from November. As of noon ET, the S&P 500 was down 2.5% -- a big move for a single day. However, Roblox stock was down a much more pronounced 16%.
So what
In November, Roblox had 56.7 million daily active users (DAUs), up 15% from November 2021. While that might look good at first glance, there are multiple problems with this number. First, DAUs were up year over year but down from 57.8 million in October. And the user metric is also down from the 58.8 million DAUs Roblox averaged for the third quarter.
Moreover, Roblox's DAUs in November were below what even sell-side analysts were predicting, according to analyst Matthew Thornton of Truist and as reported by TheFly.com.
Finally, Roblox's growth is largely coming from international markets right now. In Q3, its highest-growth regions for DAUs were Europe and Asia-Pacific, with 30% and 40% year-over-year growth, respectively. However, currency exchange rates and the strength of the U.S. dollar are sapping the relative value of those foreign revenues. Therefore, November's revenue is only expected to be up 1% to 3% from the previous year, pending the finalized financial results.
Now what
Even after a steep share price decline over the past year, Roblox stock still trades at roughly 7 times trailing sales, which could be viewed as pricey for a company that isn't appreciably growing its revenues.
RBLX PS Ratio data by YCharts.
However, if there's any silver lining, it's that Roblox still has a large active user base to work with. Management has plans to increase monetization, including better advertising within games, which could reinvigorate growth.
Moreover, while foreign currency exchange rates are a headwind right now for Roblox, this isn't a factor that's likely to go on forever. In fact, if the dollar drops to more historical levels (and the U.S. Dollar Currency Index has come down a little in recent weeks), it could turn into a small tailwind for Roblox.
However, the most important thing for Roblox in the near future will be the results of its new monetization strategies. Data on that front is what I would recommend watching for when the company releases its next quarterly financial results.
