Roblox Sees Huge Revenue and Bookings Growth, But This Metric Remains a Red Flag

With its stock down more than 25% going into earnings, Roblox (NYSE: RBLX) reported strong fourth-quarter results and issued upbeat guidance. However, one metric continues to stand out in a negative way for the online gaming platform that is popular with kids and teenagers. Let's examine.

Strong bookings

Because of how Roblox recognizes its revenue, its most important metric that investors look at is bookings. The company gets a 30% cut of each virtual dollar (called Robux) spent on its platform, while the rest goes to game developers and distributors. Robux are recorded as deferred revenue on Roblox's balance sheet as bookings and later converted to revenue when a user purchases virtual items. Durable virtual items get recognized as revenue ratable over a user's expected lifetime on the platform, while consumable items get recognized right away.

As such, bookings are a better indicator of how much money users are currently spending on its platform than revenue. Roblox's bookings surged 63% year over year in Q4 to $2.22 billion.

Daily active users (DAUs), meanwhile, soared 69% to 144 million, while monthly unique payers (MUPs) climbed 94% to 36.7 million. Much of the growth came from international markets, although U.S. and Canadian DAUs grew 32% and MUPs were up 34%.

Overall revenue jumped 43% year over year to $1.42 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), however, fell from $65.6 million to $2.7 million. Notably, Roblox is also an aggressive user of stock-based compensation, which is removed from adjusted EBITDA. In the quarter, the company recorded $298.4 million in stock-based compensation expenses and $1.13 billion for the year. With the software-as-a-service (SaaS) sector sell-off, this has become an increasingly scrutinized metric, and for Roblox, it's a big red flag that just isn't going away.

Looking ahead, the company is forecasting revenue to increase by between 23% and 29% to a range of $6.02 billion to $6.29 billion, and for bookings to rise to between 22% to 26% to $8.28 billion to $8.55 billion. It's looking for adjusted EBITDA of between $30 million and $198 million.

Roblox is looking for first-quarter bookings of between $1.69 billion and $1.74 billion, representing growth of 40% to 44%, with revenue in the range of $1.37 billion to $1.42 billion, good for growth of 32% to 37%. It projects adjusted EBITDA of between $4 million and $22 million.

Image source: Getty Images.

Is it time to buy the stock, or should investors stay away?

Roblox turned in a strong quarter of revenue growth, with it seeing rapid expansion in international markets like Japan (160% growth), India (110% growth), and Indonesia (more than 700% growth). Meanwhile, it's using artificial intelligence (AI) to increase personalization and create more immersive virtual worlds and games. This is all leading to strong top-line growth.

That said, its stock-based compensation expense is massive, and when taking that into consideration, the company is nowhere close to becoming profitable. That would keep me on the sidelines.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool has a disclosure policy.