What happened
Roblox (RBLX +0.30%) shareholders lost ground to the market this week as the stock fell 13% through the close of Thursday trading compared to a flat result for the S&P 500, according to data provided by S&P Global Market Intelligence. The digital entertainment platform's shares remain much higher on the year, though. Roblox is up 25% so far in 2023 compared to an 8% year-to-date increase in the wider market.
This week's slump reflects uncertainty about that rally's momentum, given Roblox's upcoming earnings update.
So what
Investors will have to wait until May 10 to review Roblox's first-quarter earnings report. Yet there were signs this week that suggest struggles ahead. Streaming video specialist Roku, for example, disappointed some investors when it reported a 5% drop in average revenue per user, a critical monetization metric.
NYSE: RBLX
Key Data Points
Roblox's last quarterly update showed a 2% decline in that metric, and investors are worried about this pressure on earnings. The good news is that engagement with its platform is being lifted by a rising user base, and bookings jumped by between 15% and 21% in March, according to a mid-April update.
Now what
Most analysts following the stock expect Roblox to announce 21% higher Q1 revenue in its mid-May update. That announcement will likely show strong engagement, as investors saw this week with Roku. But the big question is whether Roblox took meaningful steps toward profitability in the period. The Wall Street pros aren't optimistic on this score: The consensus projections are for net losses for Q1 and for the full year.
A rebound in average revenue per user would represent an important step toward profitability, though. Management might outline plans for large cost cuts to lessen the expense burden, too. But the fate of Roblox's 2023 stock rally will ultimately depend on its ability to start turning its growing user base into a sustainably profitable digital entertainment business.
