Roblox


RBLX

released its November business update on Nov 15, after which its stock tanked 15.7%. The panic in investors was primarily due to concerns over its slow growth and declining daily active users.

The company estimated its bookings for the month to be $222-$225 million, up 5-7% year over year, whereas last year during the same month, bookings grew 22-24%.

The daily active users rose 15% year over year to 56.7 million users but were still low compared to the last year’s 35% growth.

Roblox’s average bookings per daily active user continues to decline as they were between $3.92 and $3.97, down 7-9% from a year ago.

What is Hindering Growth at Roblox?

The company has said that the strengthening U.S. dollar against the Euro and British pound has impacted the sale of its virtual currency called Robux, which is its main stream of revenues.

Beside the strengthening dollar, tough macroeconomic conditions are impacting the figures of Roblox. Inflation has been on the rise until last month and the Fed, though by smaller basis points, continues to hike interest rates.

This has decreased consumers’ disposable income, which has forced them to cut costs on entertainment, as this is considered the least essential.

The tough conditions have also slowed down spending on advertisement, which is another source of revenues for the free-to-play game company, Roblox.

Shares of this Zacks Rank #4 (Sell) company have fallen 72.9% year to date compared with the Zacks

Consumer Discretionary

Sector’s fall of 33.6%.

You can see


the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here


.

Per

Newzoo

, the games market is expected to generate $184.4 billion in 2022, down 4.3% year over year.

The impact of the same has been seen in other gaming companies like

Activision Blizzard


ATVI

and

Electronic Arts


EA

, which have shown declines in their figures. The net bookings of Activision Blizzard fell 3% year over year for third-quarter fiscal 2022, whereas that for Electronic Arts fell 5% for its second-quarter fiscal 2022. EA has cut its booking forecast for the full year.

Take-Two Interactive


TTWO

too cut its outlook for fiscal 2023 due to the weakening video game industry even after the recent launch of Marvel’s Midnight Suns.

What Can Aid Growth at Roblox?

Despite the challenging times, the future of the gaming industry looks bright. Per

PwC’s Global Entertainment and Media Outlook 2022-2026

, the global gaming industry is expected to be worth $321 billion by 2026.

Beside the given opportunity, Roblox continues to work on strengthening its gaming content.

It recently released games like

Vast Seas, Heroes Ultimatum, Skyfall, Dishonour

and

Tower Bound

, and has released its slate for 2023 that includes

Pixelria, Pet Simulator X, All Star Tower Defense, Nindo Story, Jail Break,

and

Roblox Blox Fruits

. These high-quality games are expected to draw traction from young players and boost Roblox’s top line.

Roblox has been focusing primarily on entering the Metaverse by creating an immersive virtual world in the existing gaming platform and technology. Being an early entrant in the Metaverse, which is gaining popularity, Roblox has a first-mover advantage that will not only help it retain existing customers but also attract new ones.

Zacks Top 10 Stocks for 2023

In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2023? From inception in 2012 through November, the

Zacks Top 10 Stocks

portfolio has tripled the market, gaining an impressive +884.5% versus the S&P 500’s +287.4%.

Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.

Be First to New Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.

Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research