Roblox (Nasdaq: RBLX) shares were down a little more than 30% following the company's Q3 earnings report which showed a miss on the top and bottom lines. The earnings miss wasn't too surprising given the stock's bearish price action into the report, and other earnings calls from video game makers which continues to show a sharp slowdown in spending.
This can be attributed to the economy reopening and the massive demand for travel, services, and going out vs staying at home. Additionally, the pandemic, stimulus payments, and release of new consoles over the past couple of years means that significant amounts of video game spending and demand was pulled forward. On top of these factors, the market environment has turned hostile towards growth and tech stocks which also adversely impacts companies like Roblox.
YTD, shares are down by 69% and are down by more than 80% from it's all-time high in 2021. Despite continued revenue and user growth and a falling stock price, the company remains expensive by nearly all valuation metrics.
Inside the Numbers
In Q3, Roblox reported a loss of $0.50 per share which was steeper than expectations of a $0.36 per share loss, and it was much steeper than last year's $0.13 per share loss. The company also posted $701 million in revenue which fell short of estimates of $713 million and was only up 10% compared to last year.
This sharp deceleration in growth is especially concerning given that Roblox has very high multiples including a price to sales of 8.9 and no easy path to becoming free cash flow profitable in the near future.
Daily active users increased by 24% to reach 58.8 million which is a slight acceleration from its 21% increase in Q2. Average hours on the platform also increased by 10%. The company was also able to reverse some negative trends in terms of ad bookings that concerned investors in previous quarters.
One negative is that the company's average revenue per user declined by 11% due to an impact from falling ad rates amid the industry weakness. Another factor is that international markets are the fastest-growing, and this comes with lower ad rates.