Metaverse pioneer Roblox Corporation (RBLX) operates an online entertainment platform. The company reported disappointing third-quarter results and hinted at decelerating growth with a decline in average daily bookings.

The strengthening of the U.S. Dollar against the Euro, British Pound, and other foreign currencies during 2022 has had an adverse impact on its bookings. Its estimated average bookings per daily active user in November were between $3.92 and $3.97, down 7% - 9% year-over-year.

Moreover, Mike Hickey at Benchmark Co. rates the stock at Sell and has a long list of dislikes. According to hickey, the investment surge in the company, despite operating challenges, leaves him “astonished.” He said its shares remain “painfully expensive,” and the management has a “lack of clear vision and discipline.”

Amid the widespread uncertainties, the stock has declined 66.1% over the past year and 25% over the past six months, closing the last trading session at $29.98, nearing its 52-week low of $21.65. It is currently trading 66.8% below its 52-week high of $90.31.

Here is what could influence RBLX’s performance in the upcoming months:

Weak Financials

For the third quarter that ended September 30, RBLX’s total cost and expenses rose 39.4% year-over-year to $817.71 million. Its loss from operations rose 287.4% from its year-ago value to $300.01 million. The company’s net cash provided by operating activities declined 62.9% from the same period last year to $67.14 million.

Furthermore, RBLX’s adjusted EBITDA declined 62.5% from the prior-year quarter to $50.88 million. The company’s net loss and loss per share attributable to common stockholders came in at $297.80 million and $0.50, increasing 302.4% and 284.6% year-over-year, respectively.

Weak Growth Prospects

The consensus loss per share estimate for the fiscal year of $1.58 indicates a rise of 62.6% from the prior year. Moreover, the company’s EPS for the fiscal fourth quarter ended December 2022 is expected to decline by a whopping 98% year-over-year to $0.50.

Also, the company has failed to surpass the consensus EPS estimates in each of the trailing four quarters, which is disappointing.

Low Profitability

RBLX’s trailing-12-month gross profit margin of 19.40% is 61.45% lower than the 50.32% industry average. Its trailing-12-month net income margin of negative 35.12% is lower than the 4.51% industry average.

Also, the stock’s trailing-12-month levered FCF margin of negative 3.56% is 55.46% lower than the industry average of 8.00%. Its trailing-12-month ROCE, ROTC, and ROTA are negative at 152.88%, 34.57%, and 15.44%, respectively and are lower than their respective industry averages of 5.81%, 3.83%, and 2.30%.

Premium Valuation

In terms of forward EV/Sales, the stock is currently trading at 5.93x, which is 222.2% higher than the 1.84x industry average. Its 61.70x forward EV/EBITDA is 663.2% higher than the industry average of 8.08x.

In addition, RBLX’s 57.62x forward Price/Cash Flow is 521.3% higher than the 9.28x industry average, and its forward Price/Book multiple of 51.69 is significantly higher than the 1.93x industry average.

POWR Ratings Reflect Bleak Prospects

RBLX’s overall F rating translates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

RBLX has a grade of F for Stability, which is justified by its high beta of 2.22. It has an F grade for Sentiment, consistent with its bleak EPS estimates.

In addition, its D grade in Value is in sync with its higher-than-industry valuation multiples.

RBLX is ranked last among the 20 stocks in the C-rated Entertainment – Toys & Video Games industry.

Beyond what is stated above, we have also given RBLX grades for Sentiment, Growth, Quality, and Momentum. Get all RBLX ratings here.

Bottom Line

Amid declining daily bookings and slow growth, RBLX delivered disappointing fiscal third-quarter results. Additionally, the stock is currently trading below its 50-day and 200-day moving averages of $33.55 and $37.11.

So, considering its grim financials, premium valuation, low profitability, and poor growth prospects, the stock is best avoided now.

How Does Roblox Corporation (RBLX) Stack up Against Its Peers?

RBLX has an overall POWR Rating of F. One could also check out these other stocks within the Entertainment – Toys & Video Games industry with an A (Strong Buy) rating: SciPlay Corporation (SCPL) and Electronic Arts Inc. (EA).

RBLX shares were trading at $29.74 per share on Friday morning, down $0.24 (-0.80%). Year-to-date, RBLX has gained 4.50%, versus a 0.71% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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