The gaming platform company’s bookings are finally stabilizing.

Roblox ‘s ( RBLX -4.47%) stock price surged 20% on Oct. 17 after the gaming platform company revealed its September key growth metrics. It believes its bookings rose 11%-15% year-over-year during the month, even after absorbing a 6% impact from unfavorable foreign exchange rates.

Its daily active users (DAUs) increased 23% to 57.8 million, while its total number of hours engaged grew 16% to 4 billion. However, its estimated average bookings per DAU (ABPDAU) still fell 7%-10% year over year.

Those growth rates suggest that Roblox’s business is finally stabilizing after lapping its post-pandemic slowdown, but do they indicate its stock can bounce back after shedding nearly 60% of its value this year? Let’s reevaluate Roblox’s near-term challenges and long-term growth potential to decide. Image source: Roblox. Is Roblox’s post-pandemic slowdown over?

Roblox’s gaming platform enables its users to create simple block-based games without any coding knowledge. It also lets them share and monetize those games with an in-game currency called Robux. Roblox’s simplicity made it a popular digital pastime for tween users throughout the pandemic as they stayed at home to attend online classes. However, that growth also set it up for tough year-over-year comparisons when the pandemic ended and those students returned to school.

That slowing growth, along with its lack of profits, caused investors to dump Roblox stock as rising interest rates crushed higher-growth tech stocks. But as the following chart illustrates, Roblox’s year-over-year growth in bookings warmed up significantly in August and September as its DAUs and total engagement hours continued to rise. Period Sept. 2022 Aug. 2022 Q2 2022 Q1 2022 FY 2021 Bookings $212-$219 million $233-$237 million $640 million $631 million $2.73 billion Growth (YOY) 11%-15% 5%-7% (4%) (3%) 45% DAUs 57.8 million 59.9 million 52.2 million 54.1 million 45.5 million Growth (YOY) 23% 24% 21% 28% 40% Hours Engaged 4.0 billions 4.7 billions 11.3 billions 11.8 billions 41.4 billions Growth (YOY) 16% 18% 16% 22% 35% ABPDAU $3.67-$3.79 $3.89-$3.96 $12.25 $11.67 $59.85 Growth (YOY) (7%-10%) (14%-16%) (21%) (25%) 3% Data source: Roblox. YOY = Year over year. DAU = daily active users. ABPDAU = Average bookings per DAU.

That trajectory indicates Roblox’s bookings will finally rise again after two consecutive quarters of year-over-year declines. It also indicates its user base is still expanding. Its bookings, DAUs, and hours engaged declined month over month in September, but that wasn’t surprising considering that students went back to school at the end of the summer.

The one sore spot for Roblox is its declining ABPDAU, which it attributes to its pursuit of overseas users who spend less money on Robux than its users in the U.S. and Canada (who accounted for 24% of its DAUs in the second quarter). But if Roblox can continue to grow its DAUs at double-digit rates (by continuing to pursue overseas users as well as older users), it could offset that pressure and grow its total bookings at a stable clip again.

Analysts expect Roblox’s bookings to rise just 2% to $2.77 billion this year, but to grow 14% to $3.15 billion in 2023 as its DAU growth stabilizes. Its upcoming launch of Immersive Ads, which will enable brands to create portals to their own digital showrooms, could also diversify its top line away from Robux and make it an interesting metaverse play . But is Roblox cheap enough to buy yet?

But based on those expectations, Roblox still isn’t a screaming bargain at about eight times next year’s sales. Unity Software ( U -6.03%), which could lure away some of Roblox’s top creators with its more advanced game development engine for professional games, trades at less than six times next year’s sales, even though it’s expected to grow a lot faster than Roblox.

Analysts also expect Roblox’s net losses to widen every year through at least 2024, which makes it a risky stock to hold as interest rates rise. Developer exchange fees, or the cash it pays out to developers to trade in their Robux, will also remain one of its top expenses. Roblox can’t significantly reduce those fees unless it lowers its exchange rates between Robux and real-world currencies, but doing so could easily alienate its top creators and throttle its DAU growth.

Faced with these challenges, I don’t think Roblox’s stock is cheap enough to buy yet. Its growth throughout August and September was encouraging, but I’d rather wait to review its full third-quarter earnings report on Nov. 9 before deciding if this volatile stock is finally […]

source Is Roblox Stock a Buy Now?

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