The Bear Case for Roblox Stock

Roblox Stock

Roblox stock (NYSE:RBLX) has fallen 75% from its highs, but it doesn’t mean it’s a good buy.

Investors may be weary about Roblox stock due to decreasing performance indicators.

Roblox Stock: A stock with high upside potential and a significant fall

In 2020 and 2021, Roblox attracted millions of daily active users (DAUs). Investors were enthralled, and it became known as a “pandemic stock.”

Roblox stock (NYSE: RBLX) was trading at $141.60 per share in November 2021. Since then, its value has dropped by 75% (64% only in 2022). Many of these so-called pandemic equities lost their appeal when pandemic shutdowns lessened. Those who could continue growth and improve metrics were potential excellent acquisitions. Roblox stock (NYSE: RBLX), however, is not one of them.

Roblox revenue is declining.

They prefer to give newer public firms flexibility in becoming profitable since investors recognize that growth comes at a cost early on. They are prepared to invest early, allowing management to spend effectively building the organization and enjoy the benefits afterward. But what happens when growth suddenly slows?

Roblox’s year-over-year revenue growth has increased from 140% to 30% in only five quarters. 

Revenue and growth rate of Roblox

Tough year-over-year comparisons are acceptable when the preceding year’s increase was so astronomical. It’s also logical that the rate will fall somewhat as the numbers increase. However, the relatively rapid fall is concerning since these causes are unlikely to account for the whole decrease. Meanwhile, operating losses increased by 19% in Q2. More stockholders will leave if this trend does not change immediately. Unfortunately, reservations indicate that this is unlikely.

Roblox reservations are declining.

Robux (Roblox’s virtual in-game currency) is the major method the company generates money. Robux income is referred to as “bookings” by Roblox. This is because it cannot be considered genuine income until the user spends the Robux on the gaming platform. The volume of bookings may reveal a lot about user engagement and business momentum to investors. It might also be a harbinger of impending danger. Less Robux expenditure, for example, might indicate that consumers are losing interest in the product. Less Robux purchases might indicate that the shaky economy is affecting consumers’ capacity to purchase Robux.

The booking news isn’t promising. Roblox reported a slight year-over-year reduction in bookings for the second consecutive quarter in Q2 2022.

Roblox stock should be approached with caution.

Despite a big dip in stock price this year, Roblox stock (NYSE: RBLX) continues to trade at a better price-to-sales ratio than sibling metaverse business Unity Software.

Many equities are being unjustly discounted in the present bear market. Even as long-term speculative investments, not all are smart buys. Before investing in Roblox, investors should do extensive research.

Featured Image – Unsplash © Oberon Copeland

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About the author: Okoro Chinedu is a freelance writer specializing in health and finance, with a keen interest in cryptocurrency and blockchain technology. He has worked in content creation and digital journalism. Since 2019, he has written on various online platforms, and his work has been recognized by several important media sources and specialists in finance and crypto. In addition to writing, Chinedu enjoys reading, playing football, posing as a medical student, and traveling.