After a steep share-price drop, what’s the winning move for Roblox (NYSE:RBLX) stock traders? Dip buyers and bottom fishers may be eager to jump in, but be careful. After viewing the relevant facts and circumstances following Roblox’s recent earnings report, I am bearish on Roblox stock and wouldn’t be surprised if it falls further.
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Roblox provides an immersive video-gaming experience with a metaverse angle and revenue-generating opportunities within the game. Anyone can play the Roblox game, but it mainly appeals to children and teenagers.
I’ve always been concerned that young gamers would abandon Roblox because their preferences are constantly changing. However, the data will show that plenty of people are still using Roblox – but whether the company can turn gaming revenue into bottom-line profits is a different story entirely.
Roblox’s User and Revenue Growth Are Impressive
The Roblox game has survived the test of time, so far. That’s surprising to me, but I can’t argue with the numbers. In some respects, Roblox’s first-quarter 2024 results are definitely impressive.
For one thing, Roblox grew its average daily active users (DAUs) by 17% year-over-year to 77.7 million. Furthermore, the hours engaged on Roblox increased by 15% year-over-year to 16.7 billion. Therefore, it’s fair to conclude that a lot of people continue to use Roblox, and they tend to stay on the platform for a while.
Naturally, higher user engagement tends to lead to bookings and revenue growth. Bookings (a type of adjusted revenue that video game analysts use) were $923.8 million, an increase of 19% year-over-year.
It could be said that bookings are the bread and butter for Roblox. It’s positive news, then, that bookings have increased. Bookings growth should contribute to total sales growth. So, it makes sense that Roblox’s Q1-2024 revenue increased by 22% year-over-year to $801.3 million. That’s a great result – but then, it’s not the full story.
Wall Street wanted more from Roblox. The analysts’ consensus estimate called for Roblox to have generated $806.2 million in Q1 of 2024.
Still, I won’t complain about 22% sales growth. Maybe, Wall Street was asking for too much from Roblox, especially during a time of persistent inflation when people have to choose between paying their bills and playing video games.
In any case, I don’t believe that Roblox’s quarterly sales miss would justify Thursday’s steep sell-off. RBLX stock finished 22% lower today. Could there be more problems afoot?
Roblox’s Big Spending and Muted Guidance
Indeed, there are problems that investors should bear in mind. First of all, Roblox’s spending led to a first-quarter net loss despite the company’s revenue growth.
Here’s the breakdown. For Q1 2024, I observed a year-over-year increase in every category of financial outlays: cost of revenue, developer exchange fees, sales and marketing, infrastructure/trust and safety, and so on. Notably, Roblox’s expenditures in the research and development category increased 31.4% year-over-year, from $275.537 million to $362.065 million.
I understand that we’re living in times of sticky inflation, and it costs money to maintain a video game franchise. However, I would like to see a clear and specific action plan for Roblox to control its expenditures.
This type of action plan might help Roblox stop losing money. In the fourth quarter of 2024, Roblox posted a net loss of $0.43 per share. That’s better than the $0.53-per-share loss that Wall Street had anticipated, but it’s still not something to brag about.
Finally, investors probably weren’t pleased with Roblox’s forward guidance. For the full year of 2024, Roblox expects to generate bookings of $4 billion to $4.1 billion. This represents a drop-off when compared to Roblox’s prior forecast of 2024 bookings of $4.14 billion to $4.28 billion. This helps to explain why the market decided to dump Roblox stock, even though the company demonstrated growth in certain areas.
Is Roblox Stock a Buy, According to Analysts?
On TipRanks, RBLX comes in as a Moderate Buy based on 12 Buys, five Holds, and two Sell ratings assigned by analysts in the past three months. The average RBLX stock price target is $49.72, implying 63.5% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell RBLX stock, the most profitable analyst covering the stock (on a one-year timeframe) is Jason Bazinet of Citigroup (NYSE:C), with an average return of 13.63% per rating and a 75% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Roblox Stock?
I’ll admit that there are still many people, probably young players, using Roblox’s gaming platform. The company’s quarterly data provides undeniable evidence of this and also shows that Roblox is generating strong bookings and revenue.
That’s all fine and well, but it isn’t translating to profits for Roblox. Until Roblox outlines a specific action plan for cost containment, it will be difficult to provide a confident recommendation for RBLX stock. I’m concerned that the stock will continue to decline, so I am not considering a long position today.
