Roblox's stock tumbles after a big revenue miss, and worries about 'engagement'

By Tomi Kilgore

Growth of people on the platform was less than expected, as the velocity of new content 'was not optimal'

Shares of Roblox Corp. tumbled Thursday, toward their biggest selloff in nine months, after the online gaming company reported first-quarter revenue that was well below expectations and provided a downbeat current-quarter outlook.

Co-Founder and Chief Executive Dave Baszucki said on the post-earnings call with analysts that the number of people on its platform was "very strong," but while that number isn't reported, "we did see less growth in Q1 than we expected."

The stock (RBLX) plunged 20.8% in afternoon trading, to put it on track for the lowest closing price since Oct. 26, 2023. It was also headed for the worst daily performance since it tumbled 21.9% on Aug. 9, 2023.

Benchmark analyst Mike Hickey maintained the bullish stance he's had on the stock for the past year, but cut his price target by 20%, to $40, citing a significant decline in player engagement.

"While we remain optimistic about Roblox's growth potential, recognizing that growth in live services can be uneven, we must adjust our price target downward in light of the revised guidance and the possibility that the current player engagement softness may not be temporary," Hickey wrote in a note to clients.

For the latest quarter, net losses came in at $270.6 million, or 43 cents a share, after losses of $268.3 million, or 44 cents a share, in the same period a year ago. The FactSet consensus for per-share losses was 53 cents.

Revenue grew 22.3% to $801.3 million, but missed the FactSet consensus of $918.8 million, while bookings increased 19% to $923.8 million but were below expectations of $930.4 million.

CEO Baszucki gave some reasons why growth of people on its platform fell short.

"First off, we shipped a bunch of new tech in the second half of last year," Baszucki said, according to a FactSet transcript. The rollout included dynamic heads, layered clothing, anti-cheat and expanded voice technologies.

"And we believe, especially in the low end Android, even near the end of Q4, we were starting to see some drag with this," Baszucki said.

Also, he believes the velocity of new content, and the way in it the new content was highlighted on the platform, "was not optimal."

On a bright note, free cash flow was up 133% to $191.1 million, well above the FactSet consensus of $55.7 million.

Looking ahead, the company expects second quarter revenue of between $855 million and $880 million, which is below the current FactSet consensus of $929.3 million. Bookings are projected to be between $870 million and $900 million, compared with expectations of $943 million.

For the full year, the company raised its revenue guidance to between $3.450 billion and $3.525 billion from between $3.3 billion and $3.4 billion, but cut its outlook for bookings to between $4 billion and $4.1 billion from between $4.14 billion and $4.28 billion.

At current stock prices, the company's market capitalization was $19.5 billion. That's down from $28.9 billion at the end of 2023, according to FactSet data, and well below the peak market cap of $77.9 billion on Nov. 19, 2021.

The stock has plummeted 32.4% year to date, while the S&P 500 had gained 9.1%.

-Tomi Kilgore

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05-09-24 1401ET

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