Online gaming platform Roblox (RBLX.N) faced a setback as it reported missing second-quarter bookings estimates on Wednesday. The company’s growth was hampered by diminishing demand for its online games and heightened competition within the industry. This disappointing news triggered a nearly 20% drop in its shares, marking the worst performance in the past 10 months. Moreover, if losses persist throughout the session, the company could see nearly all of its gains for the year erased.
The video game industry is grappling with a slowdown in consumer spending as gamers, wary of inflation, become more discerning when selecting popular titles to engage with.
In response to these challenges, Roblox disclosed its strategy to manage its growth trajectory. The company plans to curtail the pace of its headcount expansion, aiming to achieve operational leverage starting in fiscal year 2024 and continuing through fiscal year 2025.
Roblox is known for operating in the realm of the metaverse—an emerging virtual space where users not only play games but also engage in transactions. In the second quarter, the platform reported having 65.5 million daily active users, with an ambitious long-term target of reaching a staggering 1 billion daily users.
Despite its widespread popularity for games like “Adopt Me!” and “Brookhaven,” Roblox reported net bookings of $780.7 million for the quarter, falling short of analysts’ average projection of $784.9 million, as per Refinitiv data. The company also reported a loss of 46 cents per share, slightly exceeding the anticipated loss of 45 cents per share predicted by analysts.
Roblox’s performance aligns with the broader trend in the gaming industry, as Electronic Arts (EA.O) and “Grand Theft Auto” publisher Take-Two (TTWO.O) also issued downbeat forecasts recently.
For Roblox, its revenue strategy includes capitalizing on advertising initiatives. The platform, which is particularly popular among teenagers and tweens, anticipates generating revenue this year from its advertising endeavors. Notable advertisers such as Spotify (SPOT.N) and H&M (HMb.ST) have joined forces with the platform to tap into its user base.
CEO David Baszucki acknowledged the progress in this direction during a post-earnings call, stating, “We’ve now done over 200 brand activations on the platform. And we’ll make revenue this year in advertising.”
In addition to advertising, Roblox has embraced the potential of artificial intelligence (AI). The company has an ambitious pipeline of AI innovations set to unfold over the coming years.
