Roblox (NYSE:RBLX) reported its May key metrics on June 15. The initial response by investors was to send RBLX stock lower, but it recovered. It hasn’t been an easy month, or year for that matter, for the California-based video game platform.
On May 27, InvestorPlace’s Shrey Dua reported that Morgan Stanley analyst Brian Nowak felt RBLX could drop as low as $15 in a worst-case scenario. Two weeks later, Goldman Sachs analyst Eric Sheridan downgraded Roblow from “neutral” to “sell” while cutting its target price by $11 to $28.
No wonder its share price is down 24% over the past month. Analysts are abandoning Roblox. However, the metrics weren’t terrible, so you might want to keep the stock on your Buy watchlist despite its headwinds.
The Key Metrics and RBLX Stock
As I said in the intro, there was some good news and bad news in its May numbers.
The positives included a 17% year-over-year increase in its daily active users (DAUs) to 50.4 million and a 10% increase in hours engaged to 3.6 billion. So, more people are playing the game for longer than in May 2021.
The negatives in May included estimated bookings were between $196 million and $199 million, a decline of 9% to 11%, while the estimated average bookings per DAU (ABPDAU) was between $3.89 and $3.95, a drop of 23% to 24% from last year.
Roblox attributed the bookings weakness to a strong U.S. dollar against most foreign currencies, including the British pound and euro.
To figure out just how good or bad the May numbers were, it helps to look at Roblox’s 2021 10-K and previous Q1 10-Qs. This will give you some historical understanding of its key metrics.
Metrics Have Been Off Since Start of 2022
Roblox reported its Q4 2021 and full-year results in February. Its ABPDAU in the fourth quarter was $15.57, while its full-year ABPDAU was $59.85. Its fourth-quarter number was lower than its Q4 2020 APBDAU of $17.30, but that was in the heart of the pandemic. Otherwise, Q4 2021 was higher than Q4 2019 and Q4 2018.
Let’s consider the quarterly ABPDAUs between Q1 2022 and Q2 2021.
Quarterly ABPDAU – Q2 2021 through Q1 2022
If you add up its ABPDAU over the trailing four quarters, you get $$56.14, 6.2% less than its number for fiscal 2021. Divide $11.67 by three months and you get a monthly average of $3.89. Multiply that by 12, and you get $46.68.
That last figure is the most discouraging. If it finishes 2022 with an ABPDAU of $46.68, that’s a 22% drop from 2021.
How big a problem is this decline?
According to Roblox’s 2021 10-K, over the past 17 quarters, its quarterly ABPDAU was below $11.67 on eight occasions. That’s the good news. The bad news is that seven of them were before 2020. Since the beginning of 2020, on just two out of nine occasions, its ABPDAU was $11.67 or less.
So, I don’t think there’s any question that its ability to monetize its DAUs is slowing. That doesn’t mean it can’t resume an upward trajectory, only that it will be hard in this inflationary environment.
Why Keep RBLX Stock on Watchlist?
I believe there are two reasons investors should keep an eye on Roblox.
First, despite the slowdown in ABPDAU, its free cash flow in the first quarter of 2022 was almost $105 million. Sure, that’s down from $142 million a year earlier, but it’s still positive. How many tech stocks can you think of that aren’t generating positive free cash flow? I can think of a bunch.
Secondly, it still has a ridiculous amount of cash on its balance sheet – $3.13 billion as of March 31 – and less than $1 billion in long-term debt. It has plenty to weather this slowdown.
The risk/reward proposition today, trading around $26, is far better than when its shares were trading around $140 in November.
Aggressive investors ought to be chomping at the bit. Everyone else probably doesn’t have the nerve to jump in. Long-term, the Roblox story is a good one. Govern yourself accordingly.
On the date of publication, Will Ashworth 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.