Shares in video gaming platform company Roblox (NYSE: RBLX) are having a bad run this year. Earlier this week, the stock tanked after the company posted its Q4 2021 results.

I’ve been monitoring Roblox closely as I’m quite bullish on the video gaming market and it looks like it could be a major player in the metaverse. So has the recent share price fall provided an attractive entry point for me? Let’s take a look.

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Why did Roblox stock fall?

Looking at the Q4 results, it’s not hard to see why Roblox stock tanked. For starters, both revenue and earnings missed Wall Street’s estimates.

For the quarter, revenue amounted to $770m, below the $772m analysts had been expecting. Meanwhile, the loss for the quarter of $0.25 was greater than the $0.13 loss expected.

Additionally, January 2022 bookings (equal to the amount of virtual currency purchased by users in a given period of time) were down significantly on recent monthly booking figures. For the month, bookings were between $220m and $223m, up just 2-3% year-on-year.

By contrast, in October, November and December, the company posted bookings growth of 15%, 23%, and 21% respectively.

This figure suggests the company is seeing a bit of a slowdown right now. That’s not so surprising though, given the world is reopening after the pandemic.

Once stuck-inside kids and teens are now spending weekdays off their devices and out in the real world,” commented Jefferies’ analyst Andrew Uerkwitz.

The growth story is still in play

Stepping back a bit and looking at the bigger picture however, the growth story here appears to be intact.

For 2021, revenue increased 108% over fiscal year 2020 to $1.9bn, while bookings rose 45% year-on-year to $2.7bn. Net cash provided by operating activities jumped 26% to $659.1m.

And at the end of January, the company had daily active users (DAUs) of 54.7m, up 32% from January 2021.

With nearly 55 million daily active users, Roblox is increasingly an integral part of people’s lives,” said CEO David Baszucki. “Our 2021 results demonstrate that the investments we were able to make in our technology and developer community are generating strong returns, and we will continue leaning into the business as we focus on the large, long-term growth opportunity ahead of us,” he added.

This is all quite encouraging, to my mind. However, it’s worth pointing out that Roblox is not expected to be profitable in the near term. For 2022, analysts expect the group to post a net loss of $365m. This adds risk to the investment case. Unprofitable company stocks can be highly volatile.

Valuation

As for the valuation, at the current share price Roblox has a market-cap of around $32.5bn. Given that analysts expect revenue of $3.31bn for 2022, that puts the price-to-sales ratio at just under 10.

That is high, which again adds risk. But I don’t think it’s outrageous, given Roblox’s huge user base and metaverse-related growth prospects. That valuation is not a deal-breaker for me.

My move now

Putting all this together, I see Roblox as a ‘speculative buy’ for me right now. But this is not a stock I’d load up on. However, given that the video gaming industry looks set for strong growth in the years ahead, I’d be comfortable taking a small position at the current share price.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.



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