After initially sending shares lower, investors changed their minds and pushed Roblox (RBLX -0.59%) stock higher following its recent first-quarter earnings report. The online gaming platform provided support for both the bullish and bearish thesis on the stock, with good news on engagement offset by significant net losses.
But is the stock a buy right now? Let's take a closer look at those growth and financial trends, and what they might mean for this tech stock.
The growth model is working
Roblox's engagement metrics demonstrate that its platform is popular for both creators and gamers. More than 66 million users were active in the first quarter, up 22% over the prior-year period. Roblox logged nearly 15 billion hours of engagement, also up more than 20%. "The momentum in our business demonstrates the success of our creator community," CEO David Baszucki said in a press release.
That momentum looks especially strong considering that it came on top of huge gains a year ago. Roblox's early 2022 revenue was up 83%, and its current first-quarter figure of $655 million is up 69% compared to two years earlier.
Losses continued
The business isn't yet generating sustainable earnings, but the trend is positive here. Sure, net losses ballooned to $270 million from $162 million a year ago as Roblox spent more on development, salaries, and tech hardware. But its bookings performance has improved for four consecutive quarters, steadily marching from a 25% decline a year ago to flat results today.
This progress suggests Roblox has a good shot at boosting its average revenue per user back toward its 2021 record of $60. This core metric fell 14% last year as many consumers stepped away from digital entertainment platforms following pandemic lockdowns.
The other positive financial trend was cash flow, which rose 20% to $174 million. Success here gives management valuable flexibility as the cost of debt rises.
Looking ahead
Investors heard some even better news in management's May 10 letter to shareholders. Roblox is seeing signs of expanding momentum, including a spike in older users beginning to engage with the platform. Rising profitability is likely through the next few fiscal years, too, thanks to the combination of product improvements and operating leverage. "We are entering an exciting phase of our business," management said in the letter.
Wall Street is clearly excited by the business, too. Roblox stock is up more than 40% so far in 2023 and is valued at over 10 times annual sales. Yet investors could still achieve good returns from here as Roblox expands its platform and builds more momentum on earnings.
If you're risk-averse, you might want to wait for Roblox to start moving toward net profitability before buying the stock. More growth-focused investors will likely find enough positive news on engagement and bookings trends to make this an attractive stock right now.
While a recession would necessarily slow any rebound, Roblox is clearly on a path right now toward much higher annual earnings over the next several years.
