Shares of video game platform Roblox (NYSE: RBLX) crashed on Thursday after the company reported financial results for the fourth quarter of 2024 that exceeded expectations. Yes, financial results were better than expected, but investors are nonetheless worried about some trends in the business. And that's why Roblox stock was down 11% as of 11 a.m. ET.
Certain trends overshadow otherwise strong financials
This is admittedly a complicated story and market reaction.
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In isolation, Roblox's numbers were good. Q4 revenue of $988 million was up a whopping 32% year over year and ahead of its guidance of $935 million to $960 million. And other metrics, such as bookings, free cash flow, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were all as good or better than management's guidance. If investors only looked at these numbers, they'd be celebrating.
But investors aren't just looking at the Q4 headline numbers. When users deposit money into Roblox's platform, that's known as bookings. Bookings per daily active user flatlined in Q4, up just 1% from the prior-year period. Daily active users were up 19% year over year to over 85 million, which was good. And yet this fell short of expectations.
In other words, not as many people are joining Roblox as hoped. And spending per user is stagnating, a combination that troubles investors. On top of this concern, Roblox's management provided financial guidance for 2025, showing slower revenue growth and larger net losses. This led to the big drop with Roblox stock today.
One of the bigger issues
There's a wide gap between Roblox's free cash flow and its net profits. In 2025, management expects to lose roughly $1 billion on a net basis, but expects to profit at least $800 million on a free cash flow basis. As is often the case, the difference-maker is stock-based compensation -- a noncash charge that impacts net profits but not cash flow. As long as this trend persists for Roblox, this will be a headwind on returns because it dilutes shareholders.
In conclusion, there are some good numbers here for investors, but there are also some trends worth keeping an eye on for now. And both the good and bad are needed when trying to develop a well-balanced investing opinion.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool 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.
