The Roblox Stock Crash

[TL;DR]

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1. The Roblox stock price crashed due to Q4 Earning Results
2. Roblox is a popular multiplayer online game
3. Roblox has been facing problems in terms of monetizing its experience and generating profitability.


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A Rollercoaster Ride For Roblox

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Roblox rode the metaverse wave that saw stock prices of metaverse companies soar to new all time high prices. The price of Roblox (RBLX) stock saw a peak in November 2021 but recently it has witnessed a drop after the earnings report of Q4 emerged and showed a earning figure that was below the expectations of Wall Street.

Is this just a temporary trend or does this signal some larger issues with the Roblox platform? Let us find out.

The Roblox Hype

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First, let us take a brief look at what Roblox is all about. With nearly 55 million daily active users, Roblox is no ordinary thing. It is categorized as a game creation system or a massively multiplayer online game (MMO for short). Released in 2004, it took the online gaming world by storm, and has gradually acquired a wide community. With its release to the Android platform in 2014 it saw a great boost in the number of new users.

During the COVID 19 pandemic and the ensuing lockdowns, Roblox got massively popular among children who had limited opportunities of social interaction with their peers. The birthday parties that were held on the Roblox platform offered children a unique and fun way to interact with friends. Roblox certainly has an edge when it comes to providing an immersive platform for the community. With the right updates and developments, it may very well become what Zuckerberg has envisioned as a metaverse experience for the future.

Dismal Q4 Earnings for Roblox

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As per the reports, RBLX lost 25 cents a share on bookings of $770.1 million in the December quarter. Analysts and investors had predicted it to lose 12 cents a share on bookings of $772 million. This difference in projections and the reported results led to RBLX stock crashing in the double digits.

Investors have been fearful of some troubling signs like slowing engagement levels and reduced bookings. Due to the declining popularity and future engagement, the profitability of Roblox is also being affected. While historically, the company has not been much profitable, the recent report of Q4 net losses indicate a wider margin. Despite the revenue growing by 83% year on year to a figure of $569 million, the net losses also grew by 144% to around $143 million. Apart from this the free cash flow of the company also reduced from $119 million to $77 million compared to the same time last year.

The problem that Roblox has been facing for quite some time is in terms of monetizing its experience and generating profitability. For pretty much of its lifespan, Roblox has remained an under the shadow platform that only its growing user base of children was interested in. Now with the metaverse fast becoming a reality, it has the potential to rise up and become a major platform of the future of the internet.

What Does the Future Hold for Roblox?

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In a recently released press release, the Chief Executive of Roblox, David Baszucki stated,

"As we look ahead to 2022, we will continue to develop our technology to enable deeper forms of communication, immersion and expression on our platform."

While Roblox is extremely popular among children, it will need to expand its user base to include middle aged persons and adults in order to maximize its profitability. With metaverse tools and experiences expected to be ready by summer, this new target audience will certainly find a great metaverse experience from a platform that has years of experience in community building. This new demographic will also bring with it an increased spending power that will help Roblox achieve profitability.

Roblox has seen a 33% increase in its daily active users on an year-on-year basis. The company has spent a lot on research and development along with its marketing efforts to acquire more users. One of the major concerns of the community was the presence of some sexual content on the platform. The company has stamped out these ‘condos’ and increased the safety and trust level of its consumers.

Overall, the verdict on RBLX is pretty much that of near-term bearish but long-term bullish. With the right investment in infrastructure along with trust and safety, it can quickly rise to the forefront of the metaverse boom. The company has a lot of upgrades and developments planned. Let us wait and see what the future has in store for Roblox.



Author: Gate.io Researcher: Chuk U.
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
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