Roblox Corporation (NYSE: $RBLX) is a video game developer based in San Mateo that is behind the Roblox gaming platform. The platform lets users play user-generated games or create games via Roblox Studio. Users of the platform have access to numerous games, including shooter games, role-playing games, and rhythm games, which are built for all ages.
On Thursday, May 9, 2024, Roblox released disappointing Q1 results for fiscal 2024, triggering a massive selloff of the stock.
Roblox Releases Disappointing Q1 Results
For the first quarter of 2024, Roblox reported a 22% Y/Y increase in revenue to $801.3 million, below estimates of $806.2 million. The Q1 net loss per share slightly narrowed to $0.43 from $0.44 in the first quarter of fiscal 2023 and beat estimates of a $0.53 loss per share. Bookings increased 19% Y/Y to $923.8 million.
Engagement hours rose 15% Y/Y to 16.7 billion but below estimates of 17.1 billion, while average daily active users increased 17% Y/Y to 77.7 million. Meanwhile, the average monthly active users increased 13% Y/Y to 125.6 million.
The company’s consolidated net loss was $271.9 million, while adjusted EBITDA was negative $6.9 million.
Roblox ended the quarter with $238.9 million in cash from operations, a 37% Y/Y increase, while free cash flow increased 133% Y/Y to $191.1 million. Net liquidity came in at $2.5 billion.
CEO’s Comments
Commenting on the results, Roblox CEO David Baszucki stated, “Our teams have been hard at work identifying opportunities to drive DAUs, hours, and bookings growth rates back to 20% year-over-year.”
He highlighted tweaks to the AI-powered discovery algorithm, the return of platform-wide events, and the improved performance of their app.
Roblox Updates Second Quarter and Full Year Guidance
For the second quarter, Roblox expects revenue of $855-$880 million, below analysts’ estimates of $938.6 million at the midpoint. During the earnings call, Roblox stated that its conservative guidance was due to the 2024 Easter holiday being in Q1 instead of Q2, like 2023. Second-quarter bookings are expected to come in at $870-$900 million
The company expects a consolidated net loss of $267-$265 million and an adjusted EBITDA of $36 million to $38 million.
The company expects $61-$68 million in cash from operations, capital expenditures of negative 45 million, and free cash flow of $16-$23 million.
Roblox updated its full-year guidance and now expects revenue of $3.450-$3.525 billion. Bookings for the full year are now expected to be $4-$4.1 billion, below earlier forecasts of $4.14-$4.28 billion.
It expects a consolidated net loss of $1.096-$1.044 billion and an adjusted EBITDA of $95-$147 million. For the full year, Roblox expects $530-$600 million in cash from operations and around negative $180 million in capital expenditures. Its FY24 free cash flow is expected to be $350-$420 million.
Roblox Stock Performance
Following the downward revision in FY24 guidance and the conservative Q2 guidance, RBLX shares plunged 20.66% to $30.97 as of 11:33 AM EDT. The stock has lost 27.96% of its value since the beginning of the year and is down 14.42% in the past 52 weeks.
The short interest in the stock has increased 11.70% in the past month and now stands at 19.19 million shares as of April 15, 2024. Short sellers hold 5.01% of the floating shares and 3% of the shares outstanding.
As of writing this, the trading volume was 52,989,781 million shares, above the average three-month volume of 6.92 million shares.
RBLX stock is trading below its 50 DMA and 200 DMA of $38.04 and $36.52, respectively, with a current market cap of $24.97B.
Analyst’s Outlook on RBLX Shares
According to 19 stock analysts, RBLX shares have an overall moderate buy rating. The analysts have set a wide range for the stock, with a high of $60 and a low of $31. Based on the most recent price, the average price target of $49.72 represents a 59.92% upside.
Should You Buy Roblox Stock?
While there were some highlights in the Q1 results, investors were disappointed with the Q2 guidance. The estimate for bookings in the second quarter is below estimates of $938.6 million, which signals a slowdown in revenue.
To convince investors, Roblox will need to grow at a faster rate to justify the current multiples, which include a Price-to-Free-Cash-Flow Ratio of 155.20. 20 percentile growth is simply not enough, and Roblox will have to ramp up growth to keep investors interested.
Despite this, Roblox shows promise, and has grown revenue consistently. It would be a great option for investors with a high risk appetite looking for a long-term investment.
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