Troubling trends continue for this beaten-down Metaverse stock

The stock is down over 55% in 2022 as headwinds persist.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Roblox (NYSE: RBLX) experienced a surge of new customers and engagement at the pandemic's onset. The metaverse pioneer caters to the younger generation, many of whom were suddenly forced to spend most of their time at home. 

Thankfully, several effective vaccines against COVID-19 have been developed, and governments are increasingly removing pandemic-related restrictions. While it's good for humanity, the ongoing economic reopening has been bad news for Roblox. Let's look at the worsening trends for the metaverse stock. 

Headwinds are persisting for Roblox 

In its most recent update on March 15, Roblox said that bookings in February decreased by about 3% from the same month last year. Bookings are customer deposits to purchase an in-game currency called Robux, which eventually becomes revenue when players spend it on gameplay. Therefore, a decrease in bookings indicates a headwind to revenue. Average bookings per daily active user, which considers user totals, decreased by about 25% in February from the same month of the prior year.

The metric started falling in the second quarter of 2021 when economic reopening gained momentum and schools started bringing students back to classrooms. Management thinks the headwinds will continue through the middle of the year and then begin improving around June.

Beyond player deposits, engagement -- that is, the amount of time spent on the site -- is also falling. In its most profitable U.S. and Canada markets, engagement fell from about 3.2 billion hours in the first quarter of 2021 to 2.5 billion in the fourth quarter of 2021. Similarly, daily active users from the region fell from 12.6 million to 11.2 million in that same period. Management might be predicting a turnaround in the middle of the year, but there is no certainty that will be the case.

The future remains as yet unclear. On the one hand, economies might be reopening, and people are leaving their homes more often. At the same time, the pandemic is far from over. Hundreds of thousands of people are testing positive for COVID-19 daily, and tragically large numbers are becoming hospitalized and worse. All that means the world can do more in the battle against COVID-19.

As progress against the virus does occur and people and families return to pre-pandemic habits, this will be a challenge for Roblox. So on the surface, it looks as though management's estimate of engagement turning around mid-year might be on the optimistic side. 

A lower price leaves a margin of safety 

Roblox's stock is paying the price for the headwinds. It's down 65% from the high reached late in 2021 and 55% year to date in 2022. Judging by the crashing price, the market expects troubling trends to persist a while longer.

Trying to time precisely when things will turn around can be a daunting task and one that few people can do. Instead, investors can look to Roblox's price-to-sales ratio and price-to-free-cash-flow ratio of 12.2 and 42, respectively. According to those metrics, Roblox stock has hardly ever been cheaper. Of course, that doesn't mean that it cannot go lower, but the discount gives investors a margin of safety if the headwinds persist longer than expected. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Parkev Tatevosian owns Roblox Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Roblox Corporation. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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