Shares of Roblox (NASDAQ:RBLX) stock have taken a beating at the market recently. Metaverse play RBLX dipped over 20% in the past month alone after recent underwhelming earnings results. Post-earnings, investors are having long-term concerns regarding its ability to perform well in the post-pandemic world.
Roblox’s gaming platform soared in popularity during the pandemic. Its user engagement metrics rose to new heights in the past couple of years.
Millions of kids globally were confined to their homes, and with limited entertainment options, they turned to Roblox.
However, with the pandemic fade, investors are concerned over its bookings trend and the slowdown of other key metrics. Nevertheless, its engagement metrics remain solid and testament to its long-term case. RBLX doesn’t come without its fair share of risks but it remains an excellent long-term metaverse stock.
Challenging Comps
Roblox was a pandemic darling, where its revenues grew at a record pace. Its aggressive top-line expansion resulted in triple-digit growth in revenues. Before 2019, its sales hardly surpassed $150 million. However, last year’s revenues went past the $500 million mark in the last couple of quarters.
Hence, Roblox was up against it when it released its earnings results. It will take a while before it laps its tough comps with growth expected to normalize for the company.
During its fourth quarter, the company sales increased 83% from the prior-year period to $568.8 million. However, its bookings were a problem as they rose just 20% to $770.1 million. Conversely, bookings during the first nine months of 2020 grew by a whopping 171%.
Though its booking trend has an apparent deceleration, some other engagement metrics have shown resilience. For instance, its daily active users during January 2022 have shot up to 32% from the same period last year.
Also, the company is seeing plenty of success in its expansion beyond the Under-17 age group. In January, its 17 to 24 age bracket saw a healthy 51% bump in engagement numbers.
The Opportunity Ahead
Roblox has the first-mover advantage in what is expected to be a multi-million dollar industry in the metaverse. It continues to expand its user base in its gaming and social platform.
Additionally, it’s built a two-sided network that effectively connects users, brands, and content creators. Hence, it has immense potential to establish itself as a front-runner in the metaverse sector ahead of tech giants such as Meta Platforms (NASDAQ:FB).
Moreover, we are seeing it expanding its international footprint. Its developer ecosystem has now expanded to 180 countries. On top of that, it reduces its reliance on its US/Canadian users. In its most recent quarter, its DAUs from US/Canada was at just 22.6%.
Nevertheless, investing in Roblox is risky, especially considering that the metaverse concept is still in its infancy. Even if the metaverse is as big as its being touted, Roblox is up against some stiff competition in the sector.
Some of its competitors, such as Meta, have deep pockets and can continue to invest millions in building the metaverse concept. Therefore, Roblox must stay ahead of the curve; otherwise, its peers could steam it.
The Bottom Line
RBLX stock has fallen out of favor with investors after its relatively weak earnings performance. The challenging comps seem to have spooked investors and compelled them to reevaluate their positions.
However, I feel as though the market is ignoring the long-term potential of Roblox as it faces reopening headwinds. It’s perhaps the ideal time to load up on the stock, potentially providing multi-bagger returns in the future.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
