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Shares of Roblox (RBLX 1.26%) were down 16% as of 1:08 p.m. ET on Wednesday after the company reported a larger loss than expected for the third quarter. While bookings came in above estimates, the company reported a loss per share of $0.50 — lower than estimates calling for a loss of $0.30 per share.
Growth has slowed over the last year, which has put more focus on the company’s profitability. However, management offered a positive outlook for 2023. With the stock down 68% year to date, Roblox could be a tempting buy following the earnings report.
Bookings, a non-GAAP measure of revenue, grew 10% year over year, driven by a 24% increase in average daily active users. Management credited the return to growth to “high-quality experiences” that are appealing to a broad audience worldwide.
Wall Street seemed more concerned about Roblox’s worsening profitability. The company has reported negative free cash flow in each of the last two quarters after reporting robust cash generation during the pandemic. Despite the operating losses, the sell-off seems overdone based on how management characterized the momentum in the business that is starting to take hold.
Management said it had a “wonderful October,” building off the growth in the third quarter. Management sees a healthy trend of users between the ages of 17 to 24 joining the platform, in addition to growth in large markets like the U.S. and Canada. This provides momentum heading into the holiday quarter.
CFO Michael Guthrie said Roblox is following a “disciplined capital allocation strategy focused on maximizing long-term shareholder value.” Given that statement, investors should look at the sell-off as a good buying opportunity. Roblox is continuing to grow its user base, and that bodes well for its ability to monetize a larger base of users and return to profitable growth.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox Corporation. The Motley Fool has a disclosure policy.
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