The Roblox (RBLX) stock price crashed by over 15% in extended hours after the company published weak quarterly results. The shares had jumped by 7.3% in the regular session. They dropped to about $62, meaning they have fallen 56% from their all-time high. The market cap has dropped from an all-time high of over $60 billion to about $40 billion.

Roblox earnings review

The Roblox stock price rose sharply in 2021 as investors embraced the concept of the metaverse. It managed to rise by 132% from its initial public offering in April to November last year. As you recall, most people were talking about the metaverse after Facebook changed its name to Meta Platforms.

In the past few months, most metaverse assets have retreated. For example, Meta Platforms stock has crashed by over 30% in the past few weeks. Nvidia, which is building its Omniverse product, has fallen by over 12% from its year-to-date high.

The same trend has happened in the cryptocurrency industry, where assets like Decentraland, Sandbox, Axie Infinity, and Gala Games have dropped by over 30%.

At the time, Roblox was praised for being one of the first companies to embrace the metaverse. For one, the firm has been offering these solutions since 2006. 

The Roblox stock price retreated sharply after the company’s top-line and bottom-line results were disappointed. Its total earnings-per-share missed by 25 cents to $0.13 while its revenue missed by $2 million.

In total, the company’s revenue rose by 83% year-on-year to $568 million, while its bookings rose by 20% to $770 million. Its free cash flow increased to $77.3 million in the fourth quarter. 

Other metrics were equally good, even as they missed estimates. For example, the number of daily active users increased by 33% to 49.5 million, while hours engaged soared to 10.8 billion. 

For the full year, Roblox made $1.9 billion in revenue while its bookings increased by 45% to $2.7 billion. Hours engaged rose to 41.4 billion. 

Is Roblox a good investment?

From a fundamental aspect, Roblox seems like a good investment. For one, it has almost 55 million daily users from around the world. And this number is continuing to grow as gamers embrace its network. Most importantly, the company is gaining more traction from brands that want to advertise in its ecosystem.

As the metaverse industry grows, Roblox will be a major winner. However, there are some challenges that the company is facing. First, its valuation is not cheap, considering that it has a market value of more than $40 billion. Therefore, the management will need to execute to perfection.

Second, the firm has a China problem. Early this year, Roblox announced that it had shut its Chinese app amid heightened regulatory concerns. That means that it will miss out on one of the largest markets in the world.

Third, analysts expect that Roblox will continue spending a fortune on marketing in a bid to popularize its products. As a result, the total customer acquisition costs will keep rising.

Roblox stock price forecast

The daily chart shows that the Roblox stock price has been moving upwards in the past few days. The bullish trend was likely due to analysts expecting solid results from the company. They were wrong as the stock crashed to about $62 after earnings. 

Therefore, the shares have moved below the 25-day and 50-day Moving Averages. They have also fallen below the key support level at $70, which was the low of October last year. 

Roblox chart showing MAs and critical levels.

As such, there is a likelihood that the stock will keep falling as bears target the next key support at $54, this year’s low.

The views expressed in this article are those of the author. The company will not be held liable for any investment losses.