Why is Roblox “the first stock in the Metaverse” regarded as “low” by the capital market?

So will Roblox, which is in a severe situation, still be the “darling” of the market? What will the future be like?

Recently, the convening of the Winter Olympics has attracted widespread attention, and the mascot Bing Dun Dun has also become a new “top streamer”, and “one pier is hard to find” has become a common voice. In order to meet the needs of the public, the nWayPlay platform was released on February 12. A Bingdun Dun NFT blind box officially authorized by the International Olympic Committee, the birth of the Winter Olympics digital collection may mean that the radiation range of the Metaverse is expanding.

At the same time, the Metaverse circle is also dynamic. NetEase and Li Auto’s applications for the Metaverse trademark were rejected, Tencent launched a new business XR (Extended Reality), the president of Nintendo said that he didn’t understand the Metaverse yet, and Disney appointed a new executive to be in charge of the Metaverse strategy.

It is worth mentioning that the “Metaverse first share” Roblox released its financial results for the fourth quarter and full year of 2021. However, judging from the financial report, the situation of Roblox is not optimistic, and its share price has also fallen again and again, once falling back to the opening price of the first day of listing a year ago. Why was Roblox abandoned by the capital market? What will the future be like?

substandard market performance

Roblox is a large community interactive game where players can chat, interact and create with friends through the platform. Multiple attributes make Roblox considered by the outside world to be the most Metaverse platform at present, so Roblox took advantage of the wind and officially landed on the New York Stock Exchange in March 2021. It is understood that the stock price of Roblox soared as soon as it went public, and its market value once soared to hundreds of billions of dollars. It can be seen that the market recognizes it.

Time comes to February 16, 2022, Roblox, the “first share of the Metaverse”, released its financial results for the fourth quarter and full year of 2021, but from the data point of view, Roblox’s transcript does not seem to be eye-catching.

Why is Roblox "the first stock in the Metaverse" regarded as "low" by the capital market?

In terms of revenue, the loss gap has widened; financial report data shows that in the fourth quarter, Roblox’s revenue was $568.8 million, an increase of 83% from the fourth quarter of 2020. Revenue in fiscal year 2021 is $1.9 billion, an increase of 108% compared to fiscal year 2020; although revenue has increased significantly, even more than 100%, if you look at losses, you will find that losses continue to increase.

In the fourth quarter, Roblox had an operating loss of $139 million and a net loss of $143 million, both of which were significantly wider than in 2020, with a loss per share of 25 cents, much higher than Wall Street’s expectations of 13 cents.From the perspective of the entire fiscal year, Roblox’s operating loss was $495 million, compared with an operating loss of $266 million in the same period in 2020; the net loss was $491 million, compared with only $253 million in 2020. It can be seen that it is still difficult to hide the loneliness of high losses under high growth.

From the perspective of user data, user performance is lower than market expectations; Roblox’s daily active users in the fourth quarter reached 49.5 million, a year-on-year increase of 33%, slightly lower than analysts’ expectations of 50.5 million; bookings were 771 million US dollars, year-on-year Up 20%, but also missed analysts’ expectations of $772 million.

Roblox’s annual DAU was 45.5 million, a year-on-year increase of 40%; the total number of user engagement hours was 41.4 billion, a year-on-year increase of 35%; ABPDAU (average daily active user bookings) was $59.85. Roblox’s annual bookings, or the total amount of top-up users purchase the virtual currency Robux, increased by 45% year-on-year to $2.7 billion. The Roblox developer community has received a total of $538.3 million in 2021, exceeding Roblox’s previous goal of $500 million. Although it exceeded booking targets, it still fell short of Roblox’s overall revenue growth. Roblox’s performance in terms of users can be described as “unsatisfactory”. Although it is not far behind expectations, it still makes the outside world feel that it is still one step behind.

Affected by the financial report data, Roblox shares also fell one after another. After the earnings report, Roblox plunged 15.28%. By the close of trading on February 16, according to Wind data, Roblox fell 26.41% to $53.94, with a market value of $31.222 billion. The slumping stock price is in stark contrast to last year’s 130% surge.

Poor financial report data, falling stock prices, and huge gaps may make Roblox encounter the darkest moment in the history of development. So why did Roblox, which used to be at a high position, undergo such an earth-shaking change in a short period of time?

Growth retardation under dual pressure

The reasons for Roblox’s increasing losses and under-pressure growth may come from many reasons, and among the many reasons, the pressure of mergers and acquisitions and the easing of the epidemic may be the main reasons.

On the one hand, Roblox has carried out a number of mergers and acquisitions, which has increased cost pressure; Roblox In August last year, Roblox acquired the online communication platform Guilded. Its company not only has a huge user group in the IM field, but also focuses on sports. game famous.

For this acquisition, the outside world generally believes that Rolblox intends to expand its user base in a short period of time, and to consolidate its position and expand its influence at the moment when the “Metaverse” products explode.According to relevant media reports, Roblox spent $90 million in cash and stock for the acquisition of Guilded, which shows that the price is very high.

Not only that, but Roblox has also made several acquisitions in 2021, including companies such as Humen.ai and Bash Video. Although the terms of these acquisitions were not disclosed, with reference to the amount of the acquisition of Guilded, it is conceivable that the cost of acquisitions other than acquisitions will not be very low. The high cost of acquisitions has also brought loss pressure to Roblox. According to the financial report, the net loss attributable to non-controlling interests in fiscal 2021 increased from $4.437 million to $11.829 million.

On the other hand, the easing of the epidemic has led to a slowdown in growth; when most industries were affected by the epidemic and were struggling on the edge of life and death, the game industry was booming and ushered in a glorious period of time, and Roblox was the beneficiary one.

As a platform focused on children’s games, Roblox attracted the participation of as many as two-thirds of US children aged 9 to 12 at the height of the epidemic in 2020, and also saw the most significant growth in daily active (DAU) in fiscal 2020. In the second quarter of this year, DAU increased by 95% year-on-year, the third quarter increased by 97% year-on-year, and the fourth quarter increased by 94% year-on-year. For three consecutive quarters, the year-on-year growth exceeded 90%. It is not difficult to see that the growth was strong at that time.

Why is Roblox "the first stock in the Metaverse" regarded as "low" by the capital market?

But as the epidemic eased and children returned to school, the time and energy to focus on Roblox naturally declined. This trend did not appear until the fourth quarter, but appeared in the first quarter of fiscal year 2021. In the first quarter of 2021, DAU increased by 79% year-on-year, which was significantly lower than the growth rate of 90% in fiscal year 2020. In the next few quarters of 2021, the year-on-year growth of DAU will be around 30%.

At the same time, most of the user growth in DAU comes from Asia, Latin America and European countries. Compared with the basic game users in the United States and Canada, the consumption power of these regions except Europe is generally not as good as that of local users in the United States, and the growth rate of bookings is also lower than that of DAU. s reason.

In this regard, Roblox CEO Dave Baszucki also said that as the epidemic subsides and some regions begin to return to normal lifestyles, although our business will continue to grow, in some cases, the growth rate will decline. This is largely due to our unusual performance metrics last year, with key metrics doubling or tripling in some quarters.

In general, the high cost of mergers and acquisitions has made the gap of losses bigger and bigger; the slowdown of the epidemic has brought people’s lives back to normal, and the attention to games has also been diverted, and the decline in DAU growth is inevitable.

Although it is understandable, the sudden slowdown in growth of Roblox, which was once highly expected by the market, will inevitably dampen the confidence of the market. Morgan Stanley analyst Brian Nowak downgraded Roblox from “overweight” to “wait and see” “, the target price was lowered from $115 to $65.

Brian Nowak said the company’s fourth-quarter sequential decline in North American daily active users and “disappointing” global results in January this year suggest that the company’s growth rate is deteriorating from November 1 to January this year, suggesting that The reopening of the economy has created more headwinds for the platform, with more uncertainty about growth than he had previously expected.

So will Roblox, which is in a severe situation, still be the “darling” of the market? What will the future be like?

Will it still be the “market darling”?

The performance of the financial report data was unsatisfactory, and the stock price trend fell again and again, so that there were pessimists, but not everyone was negative, and the optimists in Roblox’s internal and external markets showed a positive side.

From the inside of Roblox, although the growth rate of DAU is declining, the total amount is increasing. Looking at the data in the first few quarters of fiscal 2021, DAU was 42.1 million in the first quarter and 42.1 million in the second quarter. 43.2 million person-times, 47.3 million person-times in the third quarter, and 49.5 million person-times in the fourth quarter, it can be seen that DAU is still climbing steadily.

In response to this phenomenon, Roblox also wrote in its shareholder letter: “Over the past three quarters, as parts of the world begin to return to more normal lifestyles, our absolute numbers have continued to grow, which can be reflected from our ability to provide ‘s supplementary material. Specifically, users, user stickiness, paying users, and bookings are all at (or near) all-time highs.”

In addition to stable user growth and high stickiness, Roblox’s financial report also revealed a good news, that is, sufficient cash flow. Roblox’s free cash flow in 2021 will reach $558 million, and it can be seen from Roblox’s balance sheet that free cash flow is abundant.

Why is Roblox "the first stock in the Metaverse" regarded as "low" by the capital market?

Sufficient cash flow provides more options for Roblox’s business expansion. In the shareholder letter, Roblox stated that it chose to abandon quarterly performance guidance and focus more on long-term value creation, and pointed out three key goals, namely, developing international markets; attracting Older users; expanding the application breadth of the platform.

Among them, in the goal of expanding the international market, Roblox has successively cooperated with Sony Music, Warner Music, the National Football League, etc. to build a community that contains creativity and positive relationships.On February 9 this year, Roblox announced a partnership with the National Football League to expand the reach of the Metaverse through NFL TYCOON EXPERIENCE and continue to learn more about the value of interactive shared experiences to the NFL.

Perhaps the current trough period has not affected the pace of development of Roblox. From the above goals of Roblox, it is not difficult to see that it has already found a development direction, and even regards the Metaverse as a “direction that requires long-term efforts”. Benefit, but more about long-term results.

On the one hand, there is internal firmness and composure, and on the other hand, there is no lack of optimistic attitudes from the outside. Matthew Ball, managing director of venture capital firm Epyllion, said the rise and fall of Roblox is in line with other Metaverse stocks, such as game tech company Unity Software, and expects Roblox to continue to grow.

Goldman Sachs analyst Michael Ng said the company beat expectations for bookings in the fourth quarter, but it missed expectations in January and operating expenses also rose. Analysts added that despite the recent slowdown in growth and rising risks, the stock should do better as the company returns to more normal growth levels beyond 2022. It is enough to see that Roblox has not been abandoned by the market, and some people are still “loved”.

In addition, from the perspective of the entire Metaverse environment, the Metaverse is still a hot topic in the technology and capital circles. Technology companies at home and abroad are scrambling to make arrangements. Overseas companies such as Microsoft, Apple, Google, and Nvidia are increasing their investment and R&D in this field. Domestic Tencent has launched new businesses, and ByteDance has acquired VR equipment manufacturer Pico. Giants have into related fields.

Not only are giant companies showing great enthusiasm for Metaverse, but even local governments are running fast. Beijing, Shanghai, and Shenzhen have successively incorporated Metaverse into the future development rules of cities, and Wuhan, Hefei and other places have adopted Metaverse one after another. Written in the government work report, Zhejiang, Jiangsu, Hainan and other provinces have also clarified the development direction of the Metaverse industry. It can be seen that the trend of the Metaverse is still going on.

Judging from the various performances of Roblox, it has already woken up from the dream growth one step ahead of the market. After years of development, it has outlined a clear development roadmap for itself; on the other hand, the Metaverse market environment is still hot. When the two collide, there may be different sparks. Moreover, Roblox shares also showed an upward trend, closing at $54.49 on February 17, a slight increase of 1.15%. Taken together, although it is impossible to say what the future of Roblox will be, it is conservatively estimated that it will not be too bad.

And Roblox will submit such a financial report. In addition to subjective factors, objective factors cannot be ignored. The reason why the outside world has reacted to Roblox’s financial report may be due to the high expectations of Roblox. When the pulling factor of external accidental factors (epidemic) disappears, it can still increase, which proves that Roblox has room for growth and is getting rid of it. Relying on accidental factors, pessimists need not worry too much about losing power for a while. And the market’s love is mostly impermanent. When the long-term value of Roblox is revealed, the market will still hold it in the palm of its hand.

references:

1. “Roblox Q4 financial report is “ugly” and “epidemic dividend” fades away, and the growth peak has passed? 》——Zhitong Finance APP

2. “Loss Expansion, DAU Decrease, Roblox First Mentions Three Development Directions” – Competitive Core

3. “Competing for the Capital of the “Metaverse” – Phoenix Net Auto

4. “Game fever subsides, Roblox financial report continues to “cool down” the Metaverse” – US Stock Research Institute

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-is-roblox-the-first-stock-in-the-metaverse-regarded-as-low-by-the-capital-market/
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