What happened
Week to date, shares of Roblox (NYSE: RBLX) were up 13.8% through Thursday's closing price, according to data provided by S&P Global Market Intelligence.
Earlier in the week, the gaming platform announced first-quarter earnings results. It beat the consensus analyst estimate for bookings (a non-GAAP measure of revenue). Investors took the results as a sign that the company is returning to a more sustainable growth path after a sluggish year in 2022.
Year to date, the stock is up 40% but still down 74% from previous highs.
So what
Bookings grew 23% year over year in the quarter after falling 4% in Q2 last year. It was the third consecutive quarter of accelerating top-line growth.
CEO David Baszucki said the platform is "growing in all directions." He credited tighter cost control, artificial intelligence (AI) creation, older players joining the platform, and executing against the company's vision for social communication for the the improved growth over the last few quarters.
Roblox also saw free cash flow turn positive for the first time since last year's Q1. The company is well financed with $3 billion of cash and investments sitting in the coffers. With free cash flow turning positive, management will have more resources to fuel investments in growth initiatives, including AI-generative accelerators to help content developers produce games and other experiences even faster.
Now what
Roblox could see strong growth in profits over the next few years. Management guided for operating expenses in hiring and compensation to begin growing at a lower rate of increase than bookings. As bookings continues to grow, Roblox should see free cash flow continue to build.
There's nothing better to send a stock higher than accelerating top- and bottom-line growth. Roblox stock is not cheap, trading at a price-to-sales (P/S) ratio of 10.7, but it's starting to put up numbers that might justify paying up for the shares.
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John Ballard 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.
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