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Why Roblox Stock Crashed 20% on Thursday




Why Roblox Stock Crashed 20% on Thursday

Shares of online gaming platform Roblox Corporation (NYSE: RBLX) fell 21% as of 10:35 a.m. ET on Thursday, despite a drop in both sales and profits this morning.

Ahead of the Q1 2024 report, analysts had forecast Roblox to lose $0.53 per share on $923 million in quarterly bookings. (Roblox’s bookings are a measure of revenue and consist of sales of Robux, virtual currency that will eventually be spent and converted into revenue.) In fact, Roblox only lost $0.43 per share, and its bookings exceeded $923.8 million hardly exceeded expectations.

How Bad Were Roblox Q1 Earnings?

So Roblox’s report was not entirely without good news. Revenue for the quarter grew 22% to $801.3 million. Bookings increased by 19% year on year. The number of daily active users grew by 17% and the total time spent on the website increased by 15%.

The net losses, while significant, were less than feared and even slightly lower than the $0.44 per share Roblox lost a year ago. “We work more efficiently,” explains CFO Michael Guthrie.

Is Roblox Stock a Sell?

But if all that is true, why is Roblox down and down today? so much? Well, guidance seems to provide part of the answer.

The fact that bookings grew slower than revenue already implies a future slowdown in revenue growth for Roblox, which is not a good prospect for a supposed growth stock. Roblox said second-quarter revenue will range from $855 million to $880 million, up from the first quarter. Of greater concern is the fact that management says bookings will only be between $870 million and $900 million. That’s less than Roblox reported in the first quarter and a lot of less than the more than $934 million in bookings that 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 trailing free cash flow. Growth in the mid-teens or even low twentieth percentile simply won’t cut it. And until Roblox shows it can grow faster, its stock will continue to decline.

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Rich Smith has positions in Roblox. The Motley Fool holds and recommends positions in Roblox. The Motley Fool has one disclosure policy.

Why Roblox Stock Crashed 20% on Thursday was originally published by The Motley Fool