Will engagement trends improve for Roblox?

Roblox (NYSE:RBLX) is expected to report its results for the first quarter of fiscal 2022 after markets close on Tuesday, May 10. The metaverse pioneer sees engagement trends dwindling as children return to school and economies reopen. The business flourished at the start of the pandemic as billions of people spent more time at home.

When it releases first quarter numbers on May 10, it will be interesting to see if management’s expectations have changed since the last update it provided to investors. At that time, Roblox expected engagement trends to improve by the middle of the year.

Image source: Getty Images.

Players are reducing their spending on Roblox

Roblox is free to join and use. The company makes money by selling an in-game currency called Robux. The unique business model creates a gap between when players purchase Robux and when the company recognizes revenue. Therefore, looking at bookings, which measure Robux purchases, can be as important a metric as revenue in this case.

RBLX Revenue Chart (Quarterly YoY Growth)

RBLX revenue data (quarter-over-year growth) by YCharts.

Bookings exploded 229% in Q2 2020 for Roblox. Unsurprisingly, this coincided with the COVID-19 outbreak. The rate of growth in bookings has steadily declined since, peaking at a rate of 20% in its most recently completed quarter, which ended Dec. 31. Interestingly, Roblox provides investors with monthly updates, and in its latest update in February, it noted that bookings were down 3% from the same period a year earlier.

Taking into account that it had 28% more users than the same period last year, the average level of reservations per daily active user decreased by 24.5% year on year. on the other. After surging during the pandemic, it’s understandable that Roblox is giving back some of the earnings. However, what worries investors is the uncertainty of how much of those gains they will return.

Management told investors they could expect year-over-year booking comparisons to start improving around May or June, acknowledging that concern. The company will hold a conference call the morning after the May 11 earnings announcement, and you can expect analysts to ask management for an update on that forecast.

What this could mean for Roblox investors

Wall Street analysts expect Roblox to post revenue of $639.46 million and a loss per share of $0.22. If the company achieves these projections, it will represent increases of 26.7% and 52.2%, respectively, over the same period last year.

RBLX Price to Free Cash Flow Chart

RBLX Price to Free Cash Flow Data by YCharts.

Additionally, the revenue increase would be the slowest growth rate in at least three years for the metaverse pioneer. In addition to the broader growth stock selloff, the deceleration hit Roblox stock. Down 71% in 2022, it is trading at the lowest price-to-free cash flow ratio in years. Investors who can handle short-term uncertainty can add Roblox stocks to their list of stocks to buy, especially if management sees engagement trends have improved.

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Parkev Tatevosian holds positions within Roblox Corporation. The Motley Fool holds positions and recommends Roblox Corporation. The Motley Fool has a disclosure policy.

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