Roblox (NYSE: RBLX) is scheduled to report fiscal 2021 fourth-quarter earnings on Feb. 15. The metaverse pioneer had thrived since the pandemic onset when millions of kids worldwide started spending a lot more time at home. Parents undoubtedly felt their kids were safer playing with their friends virtually on Roblox than in person while a potentially deadly virus is in circulation. But now that schools are welcoming kids back in person and more people are vaccinated against COVID-19, Roblox could start to show signs of slowing momentum when it reports Q4 earnings on Feb. 15. 
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User growth is key to powering the flywheel at Roblox
Revenue has exploded for Roblox since the pandemic onset. Its revenue of $509 million in its most recent quarter ended Sept. 30 was more than the $508.4 million in revenue it generated in all of 2019. Of course, not all of that explosive growth can be attributed to the pandemic. After all, Roblox grew sales by 56.4% in 2019, but the pandemic can be credited for putting fuel on the fire.
Roblox is free to join and to use -- for the most part. Certain items and experiences on the platform cost Robux, an in-game currency that individuals must purchase with real money. Interestingly, Roblox does not create these items or experiences. Instead, it incentivizes third-party developers to make these by promising them a percentage of the revenue they generate. In its most recent quarter, Roblox paid 26% of revenue to developers.
The more users on Roblox, the more enticing it is for developers to create experiences for the platform. The developers take on the risk of time and resources building these experiences, so the reward must be worthwhile. That's why Roblox needs to sustain user growth and engagement. In that regard, it is already showing hints of slowing down. At its peak in October, Roblox noted it had 50.5 million daily active users (DAU). During an investor update on Dec. 15, Roblox said that daily active users in November were 49.4 million.
Admittedly, the decrease in DAU is slight at 1.1 million, but the change in direction is alarming. DAU exploded from 19.1 million in fourth-quarter 2019 to 50.5 million in October 2021. There is no telling if the decrease is the start of a trend, or a scenario where the bulk of the users who signed up during the early stages of the pandemic lose interest.
What this could mean for Roblox investors
Analysts on Wall Street expect Roblox to report revenue of $767.55 million and a loss per share of $0.14. If it meets those projections, it would be an increase of 147.60% and a decrease of 27.27%, respectively, from the same period the year before.
Still, the market may be concerned about the beginning signs of slowing user growth at Roblox. The stock is down 44.8% in 2022. A lot is riding on the user trends of this metaverse pioneer when it reports Q4 earnings, so stay tuned.
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Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns and recommends Roblox Corporation. The Motley Fool has a disclosure policy.
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