Meme stocks are back in vogue, and some folks might look to Roblox (NYSE:RBLX) as a short-squeeze target. I’ve warned about this before. Serious investors shouldn’t randomly pick stocks in hope of a moonshot. Instead, look closely at Roblox’s fundamentals — and when you’ve done your due diligence, you’ll surely choose to avoid Roblox stock.
Just remember, Roblox is a gaming company, but investing isn’t just a game. If Roblox’s management makes an unrealistic promise, that’s not a good look for the company. So, let’s take off our 3D metaverse goggles and take a direct look at Roblox’s faulty financials.
Roblox’s Big Bookings Promise
While some companies focus heavily on their revenue/sales, Roblox tends to emphasize its bookings. For Roblox, bookings is related to sales, as it’s a measure of the company’s conversion of on-platform virtual currency into real-life dollars.
So, here’s what happened in 2023, after Roblox had delivered 22% year-over-year (YOY) bookings growth. As Barron’s described the situation, Roblox’s management said at the company’s investor day “that it could continue delivering 20% growth over the next few years.”
That’s an estimate, but undoubtedly, Roblox’s management knew that investors would construe it as a promise. What actually happened was that Roblox’s bookings grew 19% YOY to $923.8 million in 2024’s first quarter.
OK, so 19% isn’t very far below the 20% that Roblox had basically promised. However, Roblox guided for full-year 2024 bookings of $4 billion to $4.1 billion. This, according to the calculations of Wedbush analysts led by Nick McKay, implies 16.5% YOY booking growth for 2024.
Is Roblox Really ‘Operating More Efficiently’?
So far, it might sound like I’m nitpicking about Roblox’s bookings growth expectations versus actual results. Yet, credibility is of paramount importance, and it’s problematic if Roblox overestimated its future growth.
I’m not claiming that Roblox’s management lied outright. However, I did pick up on another issue with Roblox. Specifically, the company’s chief financial officer (CFO), Michael Guthrie, claimed that Roblox is “operating more efficiently.”
I can’t verify that claim as being true or false, since it doesn’t involve a specific metric or quantity. On the other hand, Roblox’s cost of revenue increased from $151.841 million in the year-earlier quarter to $178.866 million in 2024’s first quarter.
On a YOY basis, Roblox’s Q1-2024 costs and expenses increased in every listed category: research and development, general and administrative, sales and marketing, and so on. Hence, I’m having trouble getting on board with the claim that Roblox is “operating more efficiently.”
An unfortunate result of Roblox’s high expenditures is that the company remains unprofitable. Indeed, Roblox’s first-quarter 2024 net loss attributable to common stockholders widened slightly on a YOY basis to $270.604 million.
Roblox Stock: No Need to Play a Losing Game
Looking beyond the meme-stock hype and hope, prudent investors should carefully pore over Roblox’s financials. They should also measure Roblox’s actual bookings growth against the company’s actual results.
Along with all of that, investors have every right to question whether Roblox is really “operating more efficiently.” When all is said and done, wealth protection is a serious business and not a game, and there’s no need to risk your hard-earned capital on Roblox stock right now.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.