Roblox (NYSE: RBLX) share prices plunged after the virtual gaming platform issued disappointing guidance. The drop cooled off what had been a hot start to the year for the stock, which is still up more than 13.5% on the year as of this writing. The stock has risen by about 48% over the past year.
Let's dig into the company's results to determine whether now is a good opportunity to buy the stock on the dip.
Disappointing bookings
One of Roblox's most important metrics is bookings. This is because of how the company recognizes its revenue. Roblox gets a 30% cut of each virtual dollar, called a Robux, spent on its platform. The remaining money goes to the developers and distributors of the games and experiences on its platform, which are oftentimes the same entity.
When users buy Robux, Roblox must record it as deferred revenue on its balance sheet as bookings. It later recognizes these bookings as revenue when users purchase virtual items. Consumable items get recognized as revenue when they are used, while durable virtual items are recognized as ratable revenue over a user's expected lifetime on the platform. This could be something like buying an outfit for a virtual character. Most of the virtual items sold on its platform fall into this category.
As such, bookings tend to better indicate how much money users are spending on its platform than revenue. For the fourth quarter, Roblox's bookings rose 21% year over year to $1.36 billion. Meanwhile, it guided for 2025 bookings of between $5.2 billion and $5.3 billion. Both numbers fell shy of analyst expectations, with analysts looking for $1.37 billion in bookings in Q4, as compiled by LSEG, and $5.3 billion in 2025, as compiled by FactSet.
At the same time, daily active users grew 19% to 85.3 million but fell well short of the 88.2 million analyst consensus, as compiled by StreetAccount. Lower-than-expected daily active users likely lead to less revenue over time. The company said much of the growth in daily active users came from Japan and India, each with more than 50% growth. Average booking per daily active user, however, only rose 1% to $15.97.
Image source: Getty Images.
Overall revenue, meanwhile, climbed 32% year over year to $988.2 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from a loss of $44.8 million to a gain of $65.6 million. Notably, Roblox is an aggressive user of stock-based compensation, which is removed from adjusted EBITDA. However, this is a real expense that dilutes shareholders over time.
In the quarter, the company recorded $258.2 million in stock-based compensation expenses and $1 billion for the year. Its share count rose 5%, from 681.3 million at the end of 2023 to 714.7 million at the end of Q4. Those additional 33.4 million shares are equal to about $2.3 billion in market cap based on its current stock price.
Looking ahead, in addition to its $5.2 billion to $5.3 billion 2025 bookings guidance, the company forecasts 2025 revenue to come in between $4.245 billion and $4.345 billion and adjusted EBITDA of between $190 million and $265 million. It also expects to generate between $800 million and $860 million in free cash flow.
Roblox is looking for Q1 bookings of between $1.125 billion and $1.150 billion, with revenue in the range of $990 million to $1.015 billion. It projects adjusted EBITDA of between $20 million and $40 million and free cash flow to fall between $340 million and $360 million.
Q1 Forecast
2025 Forecast
Bookings
$1.125 billion to $1.150 billion
$5.2 billion to $5.3 billion
Revenue
$990 million to $1.015 billion
$4.245 billion and $4.345 billion
Adjusted EBITDA
$20 million and $40 million
$190 million and $265 million
Free cash flow
$340 million and $360 million
$800 million and $860 million
EBITDA = earnings before interest, taxes, depreciation, and amortization.
Roblox said its long-term goal is to garner 10% of all gaming content spending on its platform. It is currently at 2.4%.
The company is adding artificial intelligence (AI) to its platform so that users can use it to do such things as generate 3D outfits with a text prompt. It's also using AI to help improve the safety of its platform.
Should investors buy the dip?
Roblox continues to have nice potential in front of it as it adds more monetization options to its platform through ads and shopping opportunities. It's seen movies embrace its platform to advertise, and both Amazon and Shopify are also using its platform. And it continues to add users.
That said, the company's aggressive use of stock compensation and its disappointing bookings growth and daily active user numbers would keep hesitant to buy the stock right now. Its infrastructure and trust & safety expenses also remain high. The stock had been on a nice run before the earnings pullback, so investors aren't getting a big bargain with the dip in stock price.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, FactSet Research Systems, Roblox, and Shopify. The Motley Fool has a disclosure policy.
