Due to the differing ways to assess the gaming company, investors are split on Roblox (RBLX -0.80%). In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Motley Fool contributors Toby Bordelon and Brian Feroldi talk about Roblox's financials from the most recent quarter and discuss the challenges the company needs to overcome going forward.
Toby Bordelon: Let's talk about Roblox now. Unlike the first few companies we have talked about, I'm a little less optimistic about Roblox based on their most recent quarter. Let me just tell you a story in the numbers here. Fourth-quarter revenue up 83% to about $570 million. The full fiscal year revenue was up 108%. You see fourth-quarter was not as good as the full year in terms of growth. In fact, this Q4 is the third consecutive quarter of declining year-over-year growth. In Q1 2021, the year-over-year growth was 140%. So, they've gone down substantially. In fact, this is the first quarter in a year since the fourth quarter of last year where the cost of revenue grew more than revenue. Little bit of a concern there. Another concern for me here is bookings. Bookings in the fourth quarter were only up 20%. Now, bookings with gaming companies like this, that are subscription-based, bookings tend to lead revenue. When you see bookings growing at a much lower rate than revenue, you wonder, does that mean its revenue growth is going to drop off a cliff in the near future? Something to potentially be concerned about. Hours engaged, 28%. That's lower than it was in Q3. Or, the hours engaged were up 28% year-over-year, but lower than Q3. We're seeing some sequential decline here. Not great. Average bookings per daily active user were down year-over-year. The second straight quarter of declining bookings for daily active user, again, not awesome to see. Now, they did tell us that the Over 13 segment continues to be more users in the Under 13 segment in terms of daily active users. But, just barely. I don't necessarily like that breakdown. It's nice to see the user base getting a little bit older. But I really want to know, where are you in terms of Over 18? I mean, you treat a 16-year-old different than you would a 19-year-old or even a 21-year-old, in terms of when you think about the protections you need to build into your platform. If 90% of your user base is between 13 and 18, I think about this company a little bit differently. The other issue there, beyond child protection, is money. Kids generally have to ask their parents for money. While as your older user base, more adults, even younger adults, they have their own cash to spend and that's what you want. You want people spending cash on your platform. That's an issue too when you look at the user base that skews young. I think there's still some potential here, but I'm looking at this quarter and I do have some concerns based on the numbers that they're reporting to us.
Brian Feroldi: Toby?
Bordelon: Yes.
Feroldi: I've done my best to support this company. My kids asked me for Roblox.
Bordelon: Nice Roblox.
Feroldi: My kids still play Roblox and still love it. But do you think based on what you've seen, that the days of hypergrowth for this company are coming to an end?
Bordelon: I think that might be the case, Brian. I'm starting to worry that might be the case. Now, to be clear, I think growth is still there, but I think when you think in terms of growth in users, I think, yeah, we should expect less of that going forward. Remember, too, the pandemic was a huge boost for them in growing their user base. I think we just need to understand and accept that and should not expect that growth going forward. Now, that doesn't mean they can't grow. I think you just need to shift to growing the older part of their demographic, but they also need to increase the monetization per user. That's why the decrease sequentially in bookings for daily active user was a little bit of a concern to me. They do need to start monetizing their users in a bigger way. I'm worried they might be hitting a wall there. We'll see. It reminds me of other internet-based, user focus companies. There are really two stages of growth you think about. You think about step 1, grow your user base. Just get a big user base. Then step 2, start monetizing that user base. Where does Roblox fall on this spectrum going forward? Are they going to be like Facebook (META -0.59%)and Alphabet (GOOG -1.55%), companies that really know how to monetize user base and have done a fantastic job of that historically? Or, are they going to be more like Twitter (TWTR), which just can't seem to get it done on that metric? That remains to be seen. But I think the key for them is worry less about getting those user numbers up, at least the historic growth which we've seen and worry more about how you can get more money from those users. Maybe things like growing your advertising, growing your brand partnerships, getting brands to build experiences inside of Roblox, that might be where they need to look going forward.
