Actions of online games platform Roblox Company (NYSE:RBLX) fell 21% through 10:35 a.m. ET Thursday despite falling sales and profits this morning.
Heading into the Q1 2024 report, analysts predicted that Roblox would lose $0.53 per share on $923 million in quarterly bookings. (As a proxy for revenue, Roblox’s bookings consist of sales of Robux, a virtual currency that will ultimately be spent and converted into revenue.) In fact, Roblox only lost $0.43 per share, and its bookings barely exceeded expectations, at $923.8 million.
How bad were Roblox’s first quarter profits?
So Roblox’s report wasn’t entirely devoid of good news. Revenue for the quarter increased 22% to $801.3 million. Reservations increased by 19% year-on-year. The number of daily active users increased by 17% and total time spent on the website increased by 15%.
Net losses, while substantial, were lower than feared and even slightly lower than the $0.44 per share Roblox lost a year ago. “We are operating more efficiently,” said CFO Michael Guthrie.
Is Roblox Stock a Sell?
But if all this is true, then why is Roblox down today, and falling such? Well, counseling seems to provide part of the answer.
The fact that bookings grew more slowly than revenue already implies a future slowdown in revenue growth for Roblox, which doesn’t bode well for a supposed growth stocks. Roblox said second-quarter revenue would be between $855 million and $880 million, an increase from the first quarter. What’s more concerning is that management says bookings will only be between $870 million and $900 million. That’s less than what Roblox reported in the first quarter and a lot less than the more than $934 million in bookings Wall Street wanted Roblox to promise.
Ultimately, Roblox simply needs to grow faster if it wants to justify its current valuation of nearly 79 times free cash flow. Growth on the order of 15% or even growth below the 20th percentile simply won’t do. And until Roblox shows it can grow faster, its stock will decline further.
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Rich Smith has positions in Roblox. The Motley Fool posts in Roblox and recommends it. The Mad Motley has a disclosure policy.
Why Roblox Stock Crashed 20% on Thursday was originally published by The Motley Fool
