Roblox Corp (NYSE:RBLX) came on to the scene with a fanfare of expectations that are still in the picture but more elusive than the market first priced in. Those expectations, and the subsequent dose of reality, sent shares first to the moon and then to the bargain basement where they are now.
The point of all this is not that Roblox is played, but that now is the time to start getting interested in this stock, now that the market’s expectations have been realigned. It is trading at more reasonable levels because Roblox isn’t doing poorly, just not as fabulously well as first expected. The metaverse play, after all, is about the long-term evolution of the Internet and not some flash-in-the-pan tech story. There will be some ups and downs. The key to remember is that Roblox is at the forefront of the industry.
Roblox Shares Tumble On Weak Bookings
Roblox shares are down more than 20% after the company reported weak booking and forecast a decline in average bookings per daily active user. The decline in ABPDAU is concerning, but the weakness in bookings is not so much. The analysts expected $772 million in bookings, and the company delivered $702, a 26 basis point miss and not something we can find fault in considering how high the expectations were. So, backing up, the company reported $568.8 million in revenue or up 83.5% over last year and is in line with the consensus estimate. The gains were driven by a 49.5% increase in daily active users and a 28% increase in average hours, all good metrics.
Moving down to the income, the report gets a little messy with GAAP income of -$0.25 missing the consensus by $0.13. However, the weakness is due to increased investment in the business infrastructure and operations, which we view as a net positive. Looking forward, spending should decrease in the coming quarters and put margin expansion back on track. As for cash flow, net cash from operations equals 21.5% of the net revenue, with 63% of that designated as “free cash flow.” Roblox may not be doing as well as the analysts expected, but it is still doing well.
Michael Guthrie, Chief Financial Officer of Roblox, said,
“The foundation we put in place that allows us to invest in our business while continuing to generate strong cash flow is one of the most unique aspects of our business. Our 2021 results demonstrate that the investments we were able to make in our technology and developer community are generating strong returns, and we will continue leaning into the business as we focus on the large, long-term growth opportunity ahead of us.”
The Analysts Get Cautious On Roblox
There have been no rating or price target changes since Roblox reported earnings (yet), but the chatter has taken on a cautious tone. The worry is that user growth has peaked, but we don’t think so, not yet. Regardless, the consensus of 13 analysts covering the stock is a weak Buy with a price target of $105 or 90% above the current price action.
The Technical Outlook: Roblox Might Be At A Bottom
Shares of Roblox fell more than 25% in the wake of the earnings release, but the stock may be at the bottom. The price action appears to be halted at the previous all-time low near $54, but it is too soon to tell. Assuming that support can hold prices here, we see the stock consolidating at these levels and then entering a new bull market as soon as the second half of this year. The risk is that price action will fall below the $54 and, in that scenario, continue to fall until something changes in the numbers that traders and investors can get excited about.
