Roblox (RBLX 1.35%), a once-hot stock that has cooled off of late, is not having an easy time of it. A new round of investors bailed on the company following the release of second-quarter results last week over concerns that growth might be tapering off.
Let's take a closer look at the online game platform and game creation system's recent performance and see if we can crystal-ball its future to some degree.
Roblox had a double miss, but double-digit increases
For stocks that flew high at some point in their recent lives, even a narrow miss on earnings can badly affect investor sentiment.
That happened with Roblox, which said that its second-quarter revenue rose by 15% on a year-over-year basis to just under $681 million. The revenue jump was supported by a 22% rise in total bookings (to almost $781 million). The company's tally of average daily active users also saw a double-digit percentage bump, increasing 25% year over year to 65.5 million.
Several other operational metrics were also positive on a year-over-year basis, including Roblox's count of daily average users (DAUs), up 25% to 65.5 million; average monthly unique players, 19% higher at 13.5 million; and total hours of user engagement, an increase of 24%.
What notably didn't improve in Q2 was the company's bottom line. No one is shocked when a relatively young tech business books a net loss, but in this case, Roblox posted a deficit of nearly $285 million, or $0.46 per share. That compared most unfavorably to the less than $179 million quarterly loss a year ago.
Analysts were expecting a higher figure for bookings and a narrower one for the bottom-line shortfall. On average, they were projecting that the former would tally more than $785 million, and the latter would come in at $0.44 per share.
Roblox's growth game is strong
As any proper C-suite team would do, Roblox's management pointed out the positives in the report. It (justifiably) touted the robust increases in DAUs, total bookings, and hours of engagement. It didn't hesitate to say that this was the second quarter in a row of 20%-plus growth in bookings. Another highly encouraging development is that the DAU growth occurred in all age groups and geographies.
This means that Roblox is, for the most part, keeping up the pace of growth in areas where it really counts. As the operator of a huge metaverse filled with themed games, expanding the user base and the "stickiness" of its worlds is crucial to its success. If we flip back to the first quarter of 2022, year-over-year growth in DAUs was 28%, while hours engaged rose 18%. This is not a company that's slowing down.
Roblox is a young tech stock that missed estimates and posted a notably deep net loss, so the patience of some investors is wearing thin. Compounding that, the broader video game sector might be looking a bit wobbly to some these days. Industry mainstays Electronic Arts and Take-Two Interactive Software both recently proffered quarterly bookings guidance that didn't meet consensus analyst estimates.
Also, since stocks that have recently arrived on the exchange typically don't have a long history to draw upon, the market can be very unforgiving when they miss analyst projections. Lastly, we should bear in mind that Roblox didn't miss by much, either with bookings or profitability.
Roblox is powering up
Meanwhile, users continue to flock to Roblox, and the company remains very much on the hunt for fresh revenue.
In a conference call discussing the second-quarter earnings, CEO David Baszucki said the company has initiated more than 200 brand "activations" (read: in-game integrations of a partner's brands into games for promotion and potential revenue), and it will also draw revenue from in-game advertising during this year. Management is also aiming to reduce costs notably. Its current goal is to push the growth rate of infrastructure plus keep trust and safety expenses below that of bookings.
So far, Roblox hasn't yet made a convincing case it can succeed in such endeavors. We'll have to watch how those attempts unfold.
The fast-growing company likely has fat it can trim, and at the same time, it operates one of the largest and most powerful multiverses in the gaming industry. This power should grow, as those users just keep coming to the site, logging in, and playing for long stretches.
All-in-all, the stock's sell-off following earnings is probably unjustified. And while the stock can be volatile, it now looks like a bargain for those with an above-average tolerance for volatility.
