Is This Game Stock A Good Play?

Key Takeaways

• Roblox reported higher-than-expected earnings for the third quarter.
• Although the growth wasn’t as fast as it was in 2021, Roblox continues to increase its revenue.
• The company’s stock went up after the earnings report. Since then, the stock price has fallen a bit.

With significant downward pressure on the economy, many companies are struggling to keep pace on earnings. One reason for the lower-than-expected earnings is that households are feeling the pinch of inflation. This is especially true for companies selling items that fall into the discretionary category of a typical household budget.

Roblox sells a product that falls squarely into the discretionary spending category. However, the company recently reported higher-than-expected revenue in the third quarter of 2022. Let’s dive into a financial breakdown of Roblox to determine if it’s a good investment.

What is Roblox?

Before we get into Roblox’s financial picture, let’s take a quick look at what this company does. If you aren’t into online games, you might not have heard of Roblox before.

Essentially, Roblox sells virtual currency called Robux. Players of this online game can use Robux to customize their avatars and purchase other upgrades.

According to the company’s website, Roblox’s “vision is to reimagine the way people come together to create, play, explore, learn, and connect with one another.”

The company boasts a community of several million users.

What’s happening with Roblox stock?

As of December 4, 2022, Roblox stock (RBLX) closed at $33.99, a little bit lower than its closing stock price of $36.74 on November 11 after the earnings report was released on November 9.

For the year, Roblox stock is down overall. However, the short-term performance outlook is up.

Roblox financial breakdown

On November 9, Roblox released its financial results for the third quarter of 2022. The results are mixed. Here’s a breakdown of the company’s latest data.

Revenue

Roblox reported revenue of $517.7 million for the third quarter of 2022. This represents a 2% year-over-year increase. Of course, any year-over-year growth is moving the needle in the right direction. But these numbers weren’t nearly as impressive as last year’s.

In the third quarter of 2021, Roblox reported a year-over-year revenue increase of 102%. The booming rise in users on Roblox corresponds with the pandemic, which resulted in many people spending more time at home.

It’s difficult for a company to see 100%+ year-over-year increases for several quarters in a row. However, it’s exciting that Roblox is maintaining a positive year-over-year revenue increase as people spend less time at home.

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Bookings

Roblox includes bookings as a metric in its earnings report. According to the company, this is “defined as revenue plus the change in deferred revenue during the period and other non-cash adjustments.

Bookings is equal to the amount of virtual currency purchased by users in a given period of measurement.”

For the third quarter, bookings were $701.7 million, representing a 10% year-over-year increase. In addition to the year-over-year increase, this $701.7 million in bookings exceeded analyst booking expectations of $686 million.

Active users and spending

The bedrock of Roblox is their daily active users. If people stop playing the games, then revenue will drop as well.

Luckily for Roblox, the number of daily active users is rising. The third quarter financial report stated that the average daily active users (DAUS) were 58.8 million. That’s 24% more than this time last year.

Beyond the rising number of daily active users, hours engaged are on the rise. This quarter, Roblox reported 13.4 billion hours engaged, which is a 20% year-over-year increase.

The number of users spending time playing on the platform is rising. However, the dark spot is that average bookings per daily active user are down. The average bookings per average daily user were $11.94, down 11% from last year.

In the report, the Chief Financial Officer, Micheal Guthrie, said, “We are pleased with the third-quarter growth in users, engagement, and bookings, which demonstrates the significant progress we are making on key platform initiatives such as aging up and international growth.”

Guthrie continued, “At the same time, we are continuing a disciplined capital allocation strategy focused on maximizing long-term shareholder value.”

What’s next for Roblox?

As an investor, it’s helpful to know that Roblox is emphasizing building out this platform’s staying power by supporting a growing community of Roblox developers.

Also, the company seems to be focusing on expanding its age appeal. In the third quarter earnings call, David Baszucki, CEO, said, “I want to highlight the 17-year-old to 24-year-old growth has been a continuous improvement over the last three to four years and our whole stack is contributing to this.”

He continued, “We continue to make exceptional gains in search and discovery, both cold start and warm start, which means when an older player signs up and joins Roblox, they see more and more experiences that are tailored to them.”

All these improvements aim to entice more players to spend more time and money enjoying the Roblox games. Nevertheless, no one can predict the future. It’s impossible to know how potential users will react to these improvements.

How to build an investment portfolio

It’s often challenging to sort through your options when building an investment portfolio. With multiple financial pressures on companies and households, the market has showcased its potential for volatility lately.

Roblox is one of many stocks you can invest in. However, deciding whether or not this stock has a long-term place in your portfolio takes dedication to follow the ups and downs of the market.

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Bottom Line

While Roblox’s earnings are impressive, the fact that bookings are down is something potential investors may want to keep an eye on. Only time will tell if the company can increase its stock price to the highs it’s seen previously.

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