A strange thing happened to Roblox (RBLX) after the online gaming platform “missed earnings” in its fiscal Q2 2022 financial report on Tuesday. First, Roblox stock plunged 10% as investors learned that quarterly earnings were worse than the expected $0.23 per share loss. Roblox actually lost $0.30 per share — and revenues were worse than expected, too. But then, Roblox recovered all its losses, and actually ended the day up 1.4%.
Commenting on Roblox’s earnings, BTIG analyst Clark Lampen encouraged investors to “not overcomplicate this” report, urging them to focus on Roblox’s “accelerating growth,” wide expanses of “runway” remaining for more growth in the future, and the company’s “very manageable” needs for additional investment.
On the first point, Roblox may not have made the $644.4 million in Q2 revenue that Wall Street had hoped for, but the $591.2 million in revenue that it did collect was still up 30% year over year. While “bookings” (i.e. purchases of “Robux” by users) were down 4% year over year at $639.9 million, that was pretty close to the quarterly target for revenues. Also, average daily active users on the Roblox site grew 21% year over year to 52.2 million, and “hours engaged” (how long those players were playing) grew 16% year over year.
It’s just that all those new users, playing all those more hours, didn’t spend quite as freely post-pandemic as they did earlier in the health crisis, when many people were still working or studying from home.
That’s not good news, but it could get better. As Lampen pointed out, Roblox’s user base is still growing, and as users continue “aging-up” (i.e. growing older, and with age comes income), there’s at least the potential that these users will spend more over time. Additionally, Lampen argues that new revenue streams are emerging at Roblox, advertising being one of the more important ones, that could improve revenue growth rates going forward.
Looking ahead, Lampen is forecasting that Roblox will grow its bookings number 16% from $2.8 billion this year to $3.3 billion next year. Earnings before interest, taxes, depreciation, and amortization (EBITDA), unfortunately, is another story, with the analyst forecasting a steep decline from $232 million in 2022 EBITDA to just $83 million in 2023. Similarly, free cash flow estimates are now “down substantially.” Lampen previously projected Roblox would generate positive free cash flow of $21 million this year. Now, $233 million in negative free cash flow looks more likely.
Overall, Lampen seems unconcerned, pointing out that with $3 billion in cash on hand, Roblox has the money it needs to make the investments it must, even if that means that FCF will run negative for a time. Long-term, the analyst still believes that Roblox stock is a “buy,” and predicts the shares will hit $58 over the course of the next 12 months — a 14% gain from current levels. (To watch Lampen’s track record, click here)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
