When Meta Platforms (FB) announced its name change from Facebook, investors rushed to buy Unity (U) and Roblox (RBLX). Meta’s weak outlook, hurt by Apple IDFA destroying its advertising business, and confusion for its metaverse strategy hurt the sector.
Roblox posted a GAAP EPS loss of 25 cents for Q4/2021, despite revenue growing by 83.5% Y/Y to $568.8 million. Investors worry that the gaming platform for children will slow. Its daily active user growth of 32% Y/Y to 54.7 million and 26% Y/Y increase in user engagement are not enough.
Speculators now question its valuations amid Nasdaq’s correction in 2022. Shareholders cannot count on user growth and content investments to lead to a path of profitability. The mobile gaming firm is nearly 20 years old (founded in 2004) and continues to burn cash. Furthermore, its platform depends on young, individual developers to enrich its platform.
Opportunity
Roblox has many collaborations, including one with the NFL. This could lift Roblox’s brand awareness and lift app downloads. The company will continue to struggle in the near term. Billings grew by only 2.5% at the midpoint, compared to 60% just three quarters earlier.
The company’s bookings may rise in the next gaming release cycle. User engagement is typically sticky. This may imply a re-acceleration in customer time consumed on the platform and dollars spent.
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