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Roblox stock drops on widening losses in Q3, but other growth metrics remain strong

One of the big players in the "metaverse" space, gaming platform Roblox, saw its stock tumble by more than 15% in pre-market trading on Wednesday after reporting a wider-than-anticipated loss in its third-quarter earnings. The company, which caters to a younger demographic with its virtual-world gaming platform, reported a loss of $297.8 million, or 50 cents per share, when analysts had forecast a loss of 32 cents a share.

Roblox revenue grew 2% year-over-year to $517.7 million in the quarter, but Wall Street tends to focus on another figure called bookings, which represents both the revenue plus the change in deferred revenue during the period and other non-cash adjustments. As the company has previously explained, bookings are equal to the amount of virtual currency, which Roblox calls "Robux," that's purchased by its users during a time period -- something that Roblox says provides a timelier indication of trends.

In Q3, Roblox bookings were up by 10% year-over-year to $701.7 million, above the $686 million analysts expected.

Daily active users were also up by 24% from the year-ago period to reach 58.8 million, but average bookings per daily active user fell 11% to $11.94.

While Roblox beat estimates on several key metrics, the stock dropped as Wall Street reacted to Roblox's larger-than-anticipated loss.

Despite this setback, many remain more bullish on Roblox in the long-term as a key metaverse player -- perhaps even more so than Meta, which is spending billions trying to catch up. There are signs that Roblox is managing to grow and retain its users, even as many among its user base are now aging up. For instance, the company in Q3 noted its fastest year-over-year growth in daily active users is among those ages 17 to 24 -- a cohort that grew by 41%. Though there aren't as many users in that demographic, they monetize better than Roblox's younger players and now represent 22% of Roblox's daily active users.

More broadly, Roblox's daily active users over the age of 13 grew by 34% year-over-year and accounted for 54% of all daily active users, the company said. This is up from 38.7% in Q3 2019.

In addition, the gaming company said that core markets like the U.S. and Canada are above peak-COVID levels -- a time when Roblox, like many other gaming and entertainment companies, had seen sizable growth and activity as pandemic lockdowns kept people at home with nothing to do. Meanwhile, Western Europe and East Asia are now Roblox's fastest-growing markets, which also monetize better than some others outside the U.S., like Latin America, Eastern Europe and Southeast Asia.

Though it may be hard for Roblox to reach pandemic levels of engagement in the post-COVID era, the company said its September 2022 engagement was nearly 20% higher than in September 2019, pre-COVID. This figure is down 6% from the COVID-impacted time of September 2020, however, but suggests growth has normalized. Monetization (bookings divided by engagement hours) was in line with peak COVID time frames, and 12% higher than in September 2019.

Roblox also touted its developer traction, noting there are now 1,520 developers building for Roblox who had achieved over 100,000 hours of engagement, up 54% year-over-year as of September 2022. And there were 532 developers that had generated over a million hours of engagement, up 47%. The top 1,000 experiences at the end of the quarter accounted for 85% of Robux earnings and engagement hours, compared with 90% a year ago.

"We are delivering strong growth across our core operating metrics, powered by a growing developer community creating high-quality experiences that appeal to a broad, global audience,” said David Baszucki, chief executive officer of Roblox, in a statement. “We are creating innovative technologies to enable deeper forms of immersion, communication and expression to further enhance the value of the platform.”

The company said it will continue to invest in its growth including by hiring, expanding the platform, building new tools and experiences, in international growth, and in its older users.

Roblox stock is trading at $34.98 as of the time of writing, down by 10.83%.