Shares of Roblox (RBLX 6.73%) fell in 2022, losing 67% of their value as fears over slowing business growth led investors to press the panic button.
However, Roblox stock rose significantly in June despite the lack of company-specific news, providing relief to investors after a forgettable year so far. But does this spike mean that investors who were looking to buy metaverse stock at a low price lost an opportunity to do so? Let’s find out.
Roblox action remains attractive despite the jump
Roblox operates an online platform used by developers and creators to create, publish, and operate three-dimensional (3D) virtual experiences such as video games and other virtual worlds. Demand for its offerings has increased dramatically in the wake of the pandemic, leading to rapid growth in Roblox’s user base and revenue.
The breathtaking growth of Roblox led to a tremendous rally after the stock made its market debut on March 10, 2021, through a direct listing.
Unsurprisingly, Roblox’s valuation has skyrocketed. The shares were trading at nearly 36 times sales last year. However, the stock’s severe crash this year brought the sell multiple down to 9. This means investors can buy Roblox at a much cheaper valuation. But should they buy that beat tech stock right now?
More pain could be in the cards
Roblox is struggling to sustain its meteoric growth in 2022. The company’s revenue in the first quarter of 2022 rose 39% year-over-year to $537 million, but a 3% drop in bookings from the $631 million company was a red flag. Indeed, Roblox reservations refer to the virtual currency purchased by users to purchase virtual items such as pets, accessories, and outfits in its 3D worlds. Reservations are recognized as revenue once Roblox users spend their virtual currencies on items.
So a slowdown in Roblox bookings means its revenue growth will eventually take a hit. Analysts expect Roblox bookings to grow just 4% in 2022 to $2.84 billion. That would be a huge drop from last year’s booking growth of 45% to $2.73 billion. Additionally, Roblox user metrics for the month of May 2022 indicate that its bookings are now slowing at a more alarming rate.
The company’s estimated bookings for May fell 9% to 11% year over year to a range of $196 million to $199 million. Estimated average bookings per daily active user fell 23% to 24% year over year to a range of $3.89 to $3.95. For comparison, Roblox bookings were down 8-10% year-over-year in the month of April.
All of this indicates that users are spending less money on Roblox’s platform. That’s no surprise, as the company faces tough year-over-year comparisons — over the past two years, user engagement and spending has increased dramatically amid the pandemic. However, Roblox’s growth is expected to accelerate starting next year once the tough year-over-year comparisons are behind it.
Investors may have a chance to buy Roblox stock for less if the stock drops in the short term, and they should consider grabbing such an opportunity with both hands. Here’s why.
The company is built for long-term growth
Analysts predict a 15.5% increase in Roblox bookings in 2023. Additionally, Roblox revenue growth is also expected to accelerate over the next two years.
It’s no surprise why analysts expect Roblox’s growth rate to improve in the coming years. After all, demand for Roblox’s 3D virtual experiences is set to take off nicely thanks to a major catalyst in the form of the Metaverse, a concept that’s currently in its early stages of growth.
The Metaverse allows virtual avatars of real people to work, play, socialize and collaborate in virtual 3D worlds. The metaverse market is expected to grow at a compound annual growth rate of 47% through 2027, which means that the demand for virtual worlds is expected to increase rapidly. Roblox has already partnered with big names to ensure it stays on top of the metaverse opportunity.
Additionally, the company plans to diversify its business by adding new revenue streams such as advertising, which could open up a major long-term revenue opportunity. As such, Roblox could regain its mojo in the stock market once its growth picks up, which is why investors may want to take advantage of any potential share price declines to add this potential winner to long term to their portfolios.