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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Roblox (NYSE: RBLX) experienced an influx of new customers and engagement at the onset of the pandemic. The metaverse pioneer appeals to the younger generation, many of whom were suddenly forced to spend most of their time at home.
Fortunately, some effective vaccines against COVID-19 have been developed, and governments are removing more and more pandemic-related restrictions. While it’s good for humanity, the ongoing economic recovery is bad news for Roblox. Let us look at the worsening trends for the metaverse stock.
The wind continues to blow for Roblox
In its latest update on March 15, Roblox said bookings in February fell by about 3% from the same month last year. Reservations are customer deposits to buy an in-game currency called Robux, which will eventually generate revenue when players spend it on the game. Therefore, a decrease in bookings indicates a reversal in revenue. Average bookings per daily active user, taking into account user totals, fell by about 25% in February from the same month last year.
Metrics began to fall in the second quarter of 2021 as economic recovery gained momentum and schools began to bring students back to classrooms. The management believes that the return wind will continue through the middle of the year and then start to improve around June.
In addition to player deposit, engagement – that is, the amount of time spent on the site – also decreases. In its most profitable U.S. and Canadian markets, engagement fell from approximately 3.2 billion hours in the first quarter of 2021 to 2.5 billion in the fourth quarter of 2021. Period. Management can predict that there will be a turnaround in the middle of the year, but there is no guarantee that this will be the case.
The future remains unclear. On the one hand, the economy can reopen, and people are leaving their homes more often. At the same time, the pandemic is far from over. Hundreds of thousands of people test positive for COVID-19 every day, and tragically large numbers are hospitalized and deteriorating. All this means that the world can do more in the battle against COVID-19.
As progress against the virus happens and people and families return to pre-pandemic habits, this will be a challenge for Roblox. So on the surface, it looks as if management’s estimates of engagement around the middle of the year could be on the optimistic side.
A lower price leaves a safety margin
The share of Roblox pays the price for the headwind. It is 65% down from the high reached in late 2021 and 55% so far in 2022. Judging by the falling price, the market expects disturbing trends to persist for some time.
Trying to be precise on time as things turn out can be a daunting task and one that few people can do. Instead, investors can look at Roblox’s price-to-sale ratio and price-to-free cash flow ratio of 12.2 and 42, respectively. Following those metrics, the Roblox stock has hardly become cheaper. Of course, this does not mean that it can not be lower, but the reduction will give investors a safety margin if the return wind lasts longer than expected.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
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