Roblox (NYSE:RBLX) stock is falling today on news of a disappointing growth report. The video game producer just released a business update for November 2022. While several key metrics were up, the results were not quite in line with analyst expectations. Despite the fact that Roblox saw both daily active users and hours engaged rise, the market is clearly more concerned with the slowing overall growth indicated by this report.
RBLX stock has been falling since the news broke and isn’t likely to slow down anytime soon. As of this writing, it is down almost 17% for the day and looks primed to continue falling.
Let’s take a closer look at Roblox’s report and what it means for investors.
What’s Happening With RBLX Stock?
It’s important to examine the recent report that is pushing RBLX stock down in context. Estimated bookings for the month came in between $222 million and $225 million. That’s a 5-7% increase for the year, but it’s still a significant step down from the 22% to 24% bookings growth that Roblox reported for November 2021. It is also less than analysts were estimating. Its overall daily active user growth tells a similar story, rising 15% against last year’s 35%. Additionally, average bookings per daily active user have declined between 7-9% year-over-year (YOY).
The immediate takeaway from the Roblox report is that growth is slowing for the gaming developer. This isn’t unexpected when we consider how the gaming sector has shifted since November 2021. RBLX stock benefitted from the metaverse rush that became a defining market trend of early 2022. But now, investor focus is elsewhere and metaverse momentum clearly can’t be relied upon to spur growth. For this reason, InvestorPlace contributor Larry Ramer saw it as a stock to sell before the November report. As he stated:
“Roblox is widely viewed as a metaverse play, and leftover euphoria about that phenomenon, likely sparked by the enthusiasm of Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg, probably explains the overdone valuation of Roblox.”
The metaverse boom isn’t the only market phenomenon from which Roblox has failed to adapt, though. The company surged during the early 2020 Covid-19 lockdowns while consumers stayed at home. It was able to ride its pandemic gains into late 2021 as the race to the metaverse began. But now, with both fads behind it, RBLX stock is falling fast with no catalysts in sight to help it regain momentum. It doesn’t help that in November 2022, the company reported wider-than-expected Q3 losses, sending RBLX down even further and making investors nervous.
The Bottom Line
As Reuters reports, the gaming sector as a whole has been weakening throughout 2022 as more and more people have opted away from indoor activities. That has certainly helped drive RBLX stock. However, it is important to remember that Roblox as a company has done nothing to innovate or stay current as trends have shifted. The November report should indicate that while it is still growing, RBLX stock is not the investment that it used to be.
Shares are down 72% for the year and there’s nothing to indicate that they will bounce back anytime soon. Roblox clearly overestimated the appeal of its product in a favorable market. Now it is paying the price.
On the date of publication, Samuel O’Brient 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.
