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Roblox Struggles to Stay Ahead in a Changing World

Roblox's shares are down 71% since January.
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The desperate cry came booming out of the heart of social media.

"ROBLOX UR STOCK IS DIVING INTO THE MULTIVERSE OF DOCTOR STRANGE," the commenter , referring to the recent Marvel film. "THIS ISNT HELPING."

That might sound a little harsh, but Roblox Corp.  (RBLX) - , a video game developer, has been hit with some bad mojo in the last few months.

'The Foreseeable Future'

Founded by David Baszucki and the late Erik Casse, Roblox finished down nearly 11% to $30 on June 3, a far, far cry from its all-time closing price high of $134.72, which it reached on Nov. 19. The stock has lost 71% of its value since January, and about $40 billion in market cap evaporated during this time.

The company released Roblox, an online game platform and game creation system, that allows users to program games and play games created by other users.

There are over 202 million monthly active Roblox users worldwide, the company said.

Roblox is free to play, with in-game purchases available through a virtual currency called Robux.

Lately, analysts have not been high on Roblox, which went public on March 10, 2021.

The company missed Wall Street's expectations for two quarters in a row as covid-19 pandemic restrictions eased and users starting going out again.

Roblox said in a letter to shareholders that "we expect to continue to report net losses for the foreseeable future even as we anticipate generating net cash from operating activities."

'Flagging User Engagement'

Last month, Kunaal Malde, an analyst with Atlantic Equities, downgraded the company to neutral, saying that flagging user engagement numbers suggest trouble ahead as the company tries to monetize its online gaming platform. 

Malde also cut his price target to $30 per share from $60.

Morgan Stanley analyst Brian Nowak expressed concern over the company’s top-line growth in the second half of the year. 

Nowak, who lowered his price target from $32 to $27, predicted that increased investments to developers may negatively affect the company’s margins, while questioning the dilutive impact of certain stock compensation options offered by the company.

While the first-quarter was "better than feared," Novak said he remains cautious on revenue trends into the second half and 2023.

The analyst reiterated his “equal weight” rating but warned of a potential bear case where the stock drops as low as $15 per share.

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'Lost Touch With its Community'

Roblox has also been battered on social media.

“Dad, buy ROBLOX stock” the kids said," one . “It will be fun” they said… -51%"

"The problem lies in PR and community interaction" one , "now that they realize that they no longer need to try in order to make money, they can cut down the unnecessary and focus on whats more important like their stock, roblox had lost its touch with the community."

. "holy sh@t"

for exploiting young video game developers by taking an outsized share of revenue made from games on their platform.

'Continuous Innovation'

Baszucki reiterated the company's growth during the May 11 analysts call: daily active users totaled 54 million for the first quarter, up 28% year-over-year and the highest ever.

Hours of engagement were up 22%, while bookings were at $631 million for the first quarter, which was 3% below the year ago total. Roblox also generated over $150 million of net cash and $100 million of free cash in the first quarter.

"March, we believe, was our most difficult month lapping Covid," Baszucki said, according to a transcript of the call. "And what is really exciting is all of the user gains generally we accrued during Covid, we've kept."

Still, he added, "our bookings are highly correlated with hours of engagement, and our hours have decreased in some cohorts as we've emerged from Covid."

"We continue to believe that part of the long-term growth for our company is continuous innovation," Baszucki said.