Roblox Corporation (NYSE: RBLX) shares plunged in Thursday trading to close the day down 7.8%. This was the second day in a row of prices falling since the company reported blockbuster sales growth in its first earnings report post-IPO.
Two factors appear to be contributing to the declines. First: Competition.
As videogameschronicle.com reported late Tuesday (perhaps not coincidentally, just hours after the earnings report that sent Roblox stock flying), video game producer Ubisoft is shifting its business model away from relying solely on sales of high-price “AAA releases” and evolving to offer a “high-quality line-up that is increasingly diverse,” including “building high-end free-to-play games.”
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At the same time, a midday report out of investment bank Stifel Nicolaus yesterday, in which the analyst raised its price target on Roblox but warned of “decelerating” growth in April “that we’d anticipate continuing into the 2H as the biz laps difficult comps,” may also be weighing on the stock.
Even if Roblox‘s growth rate is decelerating, it’s got a long way to go before anyone could call it “slow.” In Q1 2021, the company says it grew revenues 140% and bookings (i.e. sales of Robux) by 161% — which actually might imply that sales growth is still accelerating at this point.
Moreover, it’s worth pointing out that on the company’s cash flow statement, Roblox translated $387 million in sales into $142.2 million in positive free cash flow (FCF) in Q1. That works out to a free cash flow margin of 36.7% — below the roughly 50% margin the company boasted heading into its IPO but superior to the 21.4% FCF margin Roblox booked a year ago in Q1 2020.
With sales growth still strong and free cash flow margins arguably improving, Roblox investors might want to look at today’s sell-off as a buying opportunity.
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Rich Smith owns shares of Roblox Corporation. The Fintech Zoom has no position in any of the stocks mentioned. The Fintech Zoom has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.