Roblox (RBLX:NYSE) shares get battered in aftermarket as report shows user growth is slowing

Shares of Roblox (RBLX:NYSE) fell by as much as 14% at the close of the market after the earnings report suggested that user growth was slowing. Roblox reported its Q4 earnings after hours on Tuesday missing on the top and bottom line, despite revenue jumping 83% year-over-year.

The gaming company reported revenue of $568 million, coming short of $604 million expected by analysts. Bookings on the platform also missed Wall Street’s forecast of $786 million with the company generating $770 million. Losses per share for the quarter stood at $0.25 versus $0.11 expected.

The bright spot in the poor financial result came from the company’s growing users. Roblox reported 49.5 million daily active users (DAUs) up 33% year-over-year.The company said it had 54.7 million DAUs as of January, though those are counted toward Roblox Q1.For its entire fiscal year, Roblox reported $1.9 billion in revenue, a 108% year-over-year increase from 2020.

With nearly 55 million daily active users, Roblox is increasingly an integral part of people’s lives,” Roblox CEO David Baszucki said in a statement. “As we look ahead to 2022, we will continue to develop our technology to enable deeper forms of communication, immersion and expression on our platform.”

Shares of Roblox Corp had risen during trading on Tuesday on expectations of an impressive financial result. The stock closed 7% higher before plummeting after its earnings result. An upgrade from analysts at the Bank of America (BA:NYSE) on monday had earlier set the pace of a bullish move on the stock coming into its earnings report.

The stock rose around 2% at the open Monday on the back of comments from BofA analyst Omar Dessouky, who described the company as a category leader. “Roblox could eventually encompass more than today’s investors can conceive,” he stated, concluding that it is “comparable to the early years of now dominant platforms.”

However, there were questions surrounding its ability to grow its subscriber base and increase revenue as the economy reopened and kids returned to school. The slow in user growth for the last quarter indicates that there may be a retreat from the pandemic inspired boost.

The crackdown on gaming in China may have also taken a toll on the business. Luobulesi (the Chinese version of the platform,) is battling to gain traction against established competitors in the Chinese market. Roblox has yet to break out in the same way that Minecraft did with its launch in China.

The gaming app is not among the top 100 gaming platforms in China. In December, Roblox had to take down its China version saying it was developing a newer platform which would perhaps be more appealing to Chinese gamers.

Roblox, which went public in March 2021, is considered a proxy for investors hoping to take an early stake in the metaverse, the 3-D version of the internet that prompted Facebook to change its name to Meta. The gaming platform allows users to create their own content, and make money off of it, and gives players the ability to travel between

During Q4, Roblox announced a new deal with the NFL that allows users to build and manage their own NFL stadiums and manage their teams. The feature, called NFL Tycoon, joins a growing list of brand partnerships for Roblox — and more will likely come in 2022.

Roblox is one of a handful of examples of metaverse apps that are already up and running. Other contemporaries include Epic Games’ “Fortnite” and “Decentraland,” and, of course, Facebook (MVRS:NASDAQ) parent Meta’s Horizon Worlds.

Still, Roblox’s success may not be tied to the metaverse in the long run, and could simply be based on the fact that it’s a compelling game. We’ll just have to wait and see if it grows beyond that.