When Facebook (FB) renamed itself to Meta, for “metaverse”, it triggered a buying frenzy in gaming stocks. The news also marked a top for the sector, for now.
Unity (U) and Roblox (RBLX) fared the worst recently. Markets are unwilling to invest in stocks based only on user growth. Gaming platforms enjoyed secular growth in the last decade. Depend accelerated temporarily after the Covid-driven lock-down. Investors mistakenly forecasted years of business growth based on lock-down numbers.
When the lockdown eased, Roku (ROKU), a streaming services firm, warned investors on slowing usage. Peloton (PTON) warned shareholders to expect slowing demand for its stationary bikes. People solved the stay-at-home fatigue by going out. Restaurants and theme parks benefited from the re-opening. Travel volumes for airport and cruise ships improved. This shift suggests that people will spend less time gaming.
In November, console sales weakened. Supply constraints for Microsoft’s Xbox and Sony’s new PlayStation, released last year, exaggerated the monthly slowdown. Roblox bucked the trend when it reported hours of engagement increased by 32% to 3.6 billion. Its bookings rose by 22-24% to $208 million to $211 million. Still, average daily bookings per daily active user are down by 8-9% to $4.21 to $4.27.
Selling pressure in Roblox and Unity will ease after the tax-loss season ends. Consider them for 2022.
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