After the bell on Tuesday, we received first quarter results from online entertainment platform Roblox (NYSE:RBLX). The company was a major beneficiary of the pandemic and has been looking to continue its growth story as investors place their bets on the metaverse. Unfortunately, the problems I’ve detailed previously have certainly continued, which led to shares falling to a new all-time low after the report.
Back in February, I was extremely worried when the company announced that January bookings growth was in the low single digits. With the pandemic boosting its user base quite nicely, the company had showed dramatic growth in its key financial metric over time. However, bookings per user numbers were starting to really drop, and I noted how that could lead to a bad quarter if that trend continued.
Well, it turned out that the first three months of this year were even worse than previously expected. The company announced total bookings of $631.2 million, which was down 3.2% over the prior year period, and the result was much worse than the 0.9% decline that was expected. Yes, the company was facing an insane bar from last year’s growth of 161%, but the quarterly bookings growth pattern since then has gone in the wrong direction: 35%, 28%, 20%, and now minus 3%.
It’s not just bookings that were a problem in Q1 2022. While daily active user growth of 28% seems nice, that’s the lowest number in more than a year as well. Hours engaged were up 22%, down from the back half of last year that showed 28% growth. Bookings per user came in at $11.67, down dramatically from the $15.57 figure seen in Q4 2021. Due to a change in estimated user life, the company also had to record lower revenues in the period, which given their high gross margins, resulted in a GAAP loss of $0.27 per share that missed expectations by 8 cents.
Unfortunately, the problems for Roblox don’t appear to be going away anytime soon. For Q2, the street was looking for bookings to actually grow again by nearly 2%, but I’m not sure that’s possible now. The reason why can be seen in the table below, showing key metrics growth for the first month of each fiscal quarter going back to last year’s Q2 period.
With April bookings down at least 8%, I don’t see how this quarter’s total is going to be positive. Remember, January of this year showed 2-3% growth and yet the quarter’s total was down 3%. While Roblox is still showing decent user growth over time, user growth is starting to slow a bit as well. The company is still not monetizing those users very well, as bookings per user continue to show larger and larger declines.
Going into this week’s report, the street was looking for bookings growth to accelerate into the double digits in the back half of this year and over 30% in the first half of next year. I don’t see how that’s possible at this point unless management comes up with a much better monetization strategy. With global economies starting to open up a bit again, user growth may be the next shoe to drop, and that creates an even larger problem.
Roblox shares went into Tuesday’s report at just $23 a share, dramatically off their 52-week high of $141.60. I have been quite negative on the name for some time as the company’s growth metrics were declining. As we’ve seen, this is the type of name that did well in the pandemic but is now struggling, and this is not the kind of stock that seemingly does well in a rising interest rate environment. I was always surprised when analysts pushed their average target price to around $115 last year. That number had been halved by this week, and I expect even more target cuts coming after this report.
In the end, shares of Roblox fell to a new all-time low in Tuesday’s after-hours session after the company’s Q1 results. Total bookings fell short of street estimates, declining a lot more than the street was looking for. Throw in an accounting change that impacted revenues, and the bottom line number also missed. Q2 is off to a very weak start, so analyst estimates are going to have to come down. While this name might have a bright future given its growing user base, management really needs to work on its monetization efforts quickly or this stock is going to keep falling.