Roblox (RBLX) Q1 Earnings Preview: Buy Or Sell?

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Ollie Martin
Updated: 9 May 2022

Key points:

  • Investors have been worried about engagement, with RBLX now down 79% from record highs
  • The company currently has 55M DAU's, a solid foundation for creators to monetize
  • February data pointed to a worrying trend in estimated bookings

The metaverse really started to gain mainstream attention from stay-at-home pandemic restrictions, when kids took to platforms like metaverse pioneer Roblox (NASDAQ: RBLX) in replacement of in-person interaction. The return to classrooms meant that the surge of younger users started to dwindle; hence engagement trends started to decline. 

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There are various metrics that investors are using to judge the take-off of Roblox; including DAU (Daily Active Users) and average bookings. Ahead of the company’s Q1 report tomorrow, investors will be looking at all angles of management’s outlook in assessment of Roblox’s current price movement. Currently down 79% of all-time highs, Roblox is trading at its lowest valuation in years. 

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If kids continue to disengage from pandemic habits, Roblox could be in for a difficult road, potentially until the metaverse itself gains more traction in popular culture. The good thing is, Roblox still touts an impressive 55M DAU’s, meaning that developers have a wide reign on creating…with limited risk of creations not taking off. In essence, Roblox’s business model means that it only has to pay developers for creations that users are enjoying, and paying for. 

Tomorrow, we need to see an uptick in engagement, but investors shouldn’t forget about average bookings – the company’s key monetization metric. February data showed a clear downturn in estimated bookings; down 2%-4% year over year to between $203M and $206M, with average bookings per daily active user also down 25% year over year. 

Realistically, tomorrow’s earnings will likely show a continuation of this; which buyers won’t be particularly keen on. The other side is, if engagement is increasing, it's only a matter of time before cash from operations follows suit. For this to be a valid signal though, the company needs to continue the trend in the forthcoming quarters. 

Roblox may well still be a leader in the metaverse, but like any emerging market, investors should be well-aware of short-term downside risk. It will be interesting to see how the market interprets Roblox Q1 data tomorrow; whether investors will be looking at engagement or average bookings. A positive outlook could also boost the pressured share price.

 

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