Is Roblox stock a ‘buy’ after losing 20% on Q3 earnings?

By:
on Nov 9, 2022
Updated: Dec 15, 2022
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  • Roblox reports a wider than expected loss for its fiscal third quarter.
  • Two analysts took a dovish note reacting to the earnings report.
  • Roblox stock is now down nearly 70% versus the start of the year.

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Roblox Corp (NYSE: RBLX) is down nearly 20% on Wednesday after the online gaming platform said it lost significantly more money in its fiscal third quarter than the Street had anticipated.

Analysts’ take on the Roblox stock

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In a letter to shareholders, though, the California-based company said bookings in its current financial quarter could hit a “new peak” as it attempts to attract users aged 17 – 24.

It sure would be a positive considering that age group is known to spend more on the platform. But it remains to be seen if Roblox indeed succeeds in attracting that demographic to its platform.

Reacting to the earnings report, Nicholas Cauley – Analyst at Third Bridge took a dovish tone since he doesn’t expect that to be a near-term phenomenon.

Roblox is still regarded as a platform primarily for children and our experts believe Roblox is still a long way from meaningfully engaging with the 17–24-year-old cohort.

That age group currently represents about 22% of the daily active users. Roblox Corp ended the quarter with 58.8 million DAUs – up 24% on a year-over-year basis but average booking per daily active user slid 11% to $11.94; becoming a reason why analysts at MKM Partners are concerned too.

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We remain concerned about the level of spending needed to achieve Roblox’s lofty goals.

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For the year, Roblox stock is now down nearly 70%.

Roblox Q3 earnings snapshot

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  • Lost $297.8 million versus the year-ago $74 million
  • Per-share loss climbed from 13 cents to 50 cents
  • Revenue went up 2.0% year-on-year to $509.3 million
  • Booking brought in $701.7 million – up 10% YoY
  • Consensus was 32 cents loss on $692 million of bookings

At 13.4 billion, hours engaged were up 20% this quarter. In the earnings press release, CFO Michael Guthrie said:

We’re continuing a disciplined capital allocation strategy focused on maximising long-term shareholder value.

Nonetheless, caution sure is warranted if you’re interested in buying Roblox stock since the Fed says terminal rate will have to go above what was previously indicated (read more). That suggests a difficult environment for the unprofitable tech companies.

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