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Roblox($NYSE:RBLX) shares plunged 15% on Wednesday after the online gaming platform issued second-quarter results that showed a decline in bookings and lower-than-expected user growth, leaving some analysts to wonder about the company’s “scalability.” Morgan Stanley analyst Brian Nowak, who has an equal weight rating on Roblox shares but raised his price target to $32 from $25, noted that the company’s scale and profitability runway appear to have gotten longer, as margins continue to decline. “
results were mixed, as bookings/EBITDA were in line with our estimates, but below Street expectations, particularly on profitability,” Nowak wrote in a note to clients. It remains to be seen how this will affect ROBLOX’s market and earnings in the long term, but some analysts are concerned about the company’s scalability going forward.
Coverage from most news outlets has been negative, with many criticising the company for its handling of the situation. On Wednesday, ROBLOX stock opened at $44.9 and closed at $48.0, up by 1.4% from its previous closing price of $47.4.
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The stock recovered slightly the following day, but is still down from its pre-earnings levels. The company blamed the weak results on lower-than-expected user growth and engagement. This is a worrying trend for a company that is relying on user growth to drive its business. Roblox is a social gaming platform with millions of active users. The company has been growing rapidly in recent years, but faces stiff competition from other gaming platforms such as Twitch and YouTube Gaming. Investors are concerned about the company’s ability to continue growing its user base and generating revenue from its existing users.