Roblox Corporation (NYSE: RBLX) shares dropped by just over a quarter after reporting an earnings miss and slower-than-expected user growth.
That isn't to say that Roblox necessarily did poorly in the fourth quarter. Per Roblox's earnings report, the company saw bookings increase to $770 million, missing analyst estimates of $772 million. Daily Active Users was just below 50 million, an increase of 33% year over year. Hours engaged was 10.8 billion, up 28%.
The company lost $0.25 a share, compared to analyst estimates of a $0.07 loss, which could help explain investor apprehension somewhat. However, the company's considerable market losses hardly seem proportional to the report itself.
Roblox's share price declined 26% on Wednesday after the earnings report was released. Shares remained essentially flat on Thursday, remaining just 0.36% up an hour before markets close.
What might help put Roblox's staggering drop in perspective is the company's explosive growth amid the Coronavirus pandemic and the "metaverse fever" epidemic that seems to have gripped Wall Street.
The allure of an immersive internet experience through virtual reality acted like a siren song for many investors, entranced by the promise of getting in on the ground floor of the web of tomorrow. As Meta (NASDAQ: FB) found out earlier this month, however, the road to the Metaverse is laden with technological and financial hurdles that hype can't overcome.
While Meta's issues included declining user numbers and the growing cost of its ambitions, Roblox's issue seems to be lofty expectations that come with being a bricklayer at the foundation of the Metaverse.
Roblox saw explosive growth last year, driving investment as it navigated its first year on the NYSE. While Metaverse investors may have been expecting rapid 'verse-fueled growth, the reality for Roblox was that many youths, the platform's core demographic, were still indoors amid COVID restrictions. With schools attempting to return to in-person learnings, and many businesses trying to resume normal operations, Roblox was due to see its userbase decline.
A more accurate indicator of Roblox's strength as a Metaverse foundation layer will likely be its capability to support the diverse array of creators on its platform and whether it can provide develop new features to remain competitive.