Why the Roblox Selloff Is Overdone After Disappointing Results
The dip in Roblox shares offers a compelling opportunity to buy in.
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On Thursday morning, Roblox Corporation RBLX went to the tape with their quarterly numbers... and oh, no. The crowd goes wild, trying to get out of long positions in the stock. The culprit? Performance and guidance. The firm's outlook calls for a greater net loss for the full year just started than expected as the firm posted disappointing results for both bookings and average daily active users.
For the firm's fourth quarter, which ended December 31, 2024, Roblox posted a GAAP EPS of $-0.33, which was better than the $-0.45 that Wall Street was looking for. However, for the quarter, the firm drove $988.183 million (+32%) in revenue, as bookings printed at $1.36 billion. Bookings were up 20.4% year over year but fell just short of estimates.
Additionally, average daily users printed at 85.3 million (+19%), well below the 88.4 million or so active users that had been the consensus view. Average monthly unique payers were also up 19%, but average bookings per monthly unique payer was up just 1%. Hours engaged were up 21%, but average bookings per daily average user was also up just 1%.
Roblox Operations
As previously mentioned, quarterly revenue was up 32% to $988.183 million. The cost of that revenue grew 27.4% to $218.741 million as developer exchange fees were up 26.5% to $280.61 million. In all, costs and expenses increased by 11.5% year over year to $1.232 billion, leaving an operating income/loss of $-244.112 million. This was up from $-355.193 million for the year-ago comparison.
After accounting for interest, other income and expenses, and taxes, net income/loss attributable to common shareholders printed at $-219.573 million, which works out to a GAAP EPS of $-0.33 per fully diluted share. This compares to the year-ago results of $-323.698 million and $-0.52.
Roblox Stock Fundamentals
For the quarter reported, Roblox generated operating cash flow of $184.491 million. Out of that number came capex spending of $63.86 million, leaving free cash flow of $120.631 million. Yes, this is a positive number. The firm does not return cash to shareholders.
Looking the balance sheet over, we see the firm's cash position stands at $2.41 billion and current assets stand at $3.728 billion. Current liabilities add up to $3.663 billion, but there is no short-term debt and $3.005 billion of that total is in deferred revenue (which as we know is not a true financial obligation). That puts the firm's current ratio at 1.02 (barely a passing grade), but once adjusted for those deferred revenues, this ratio rises to 5.73, which is another level of outstanding.
Total assets amount to $7.175 billion, of which only a tiny amount ($175.8 million) is intangible in nature. Total liabilities less equity comes to $6.966 billion. However, in this number is another $1.567 billion in deferred revenue not labeled as current and long-term debt of $1.006 billion. That's something that the firm could take care of out of pocket more than a couple of times over. This is a very good balance sheet.
Guidance for Roblox
For the current quarter, the firm sees revenue of $990 million to $1.015 billion, which puts the low end of the range above expectations for $985 million. Bookings are seen at $1.125 billion to $1.15 billion. That's also above what the street had in mind, which was a rough $1.1 billion. The firm also sees a net loss of $267 million to $287 million, which is not good but free cash flow of $340 million to $360 million, which is excellent.
For the full year, revenue is projected at $4.245 billion to $4.345 billion and bookings of $5.2 billion to $5.3 billion. Wall Street was looking for bookings of $5.1 billion. Unfortunately, the net loss for the full year is expected to land at $995 million to $1.07 billion versus Wall Street's view which was for a loss of about $973 million. Free cash flow for the full year is for $800 million to $860 million.
My Thoughts on Roblox Stock
I see the net loss and the expectation for even greater net losses. I am not downplaying that, but the cash flows are strong, and the projections for future cash flows are strong. Guidance on bookings is not weak either. The balance sheet is very well managed, and debt is not overwhelming, not even close. This morning's selloff is looking overdone to me.
Readers can see that RBLX has been brought back into the trend that it has been riding higher since April. It broke out of that trend and now has been slapped back down. The stock appears to have defended its 50-day SMA this morning quite well. Relative strength has come back to earth but is not weak. The daily MACD is arguably still in a decent spot, as long as that 12-day EMA can back away from crossing below the 26-day EMA.
My opinion is that shareholders do not need to sell this stock and that this dip can be bought in between the 50-day SMA and the 21-day EMA. Will the gap created fill? Maybe not as quickly as some would like, but this stock is on the rise, and the guidance and cash flows are strong enough to keep it on trend. The firm also now has published forward guidance on (the lack of) profitability that might be quite beatable down the road.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
