“Touch some grass” is slang for: “Stop playing video games and get some fresh air.” Two years into the Covid-19 pandemic, ardent gamers are finally taking this advice to heart. That was one reason online gaming platform Roblox lost a quarter of its market value on Wednesday morning. Growth has slowed as Americans get out and about again.
The other reason is that investors now have no compunction yanking the rug from under highly-valued growth stocks. The prospect of rising interest rates means they need little prompting to retreat from unprofitable US tech stocks.
Roblox exploded in popularity with kids and teens during the stuck-at-home early days of the pandemic. Its platform allows users to create and play games together in virtual worlds. Its sociable gaming lured nearly 55mn daily active users — triple the number two years before.
At its peak in November, the lossmaking company was worth nearly $82bn — or 47 times estimates sales. That multiple has now more than halved. For context, Activision Blizzard traded on a ratio of between 5 to 7 times during this period. The video game publisher, which is being acquired by Microsoft, makes four times more revenue and is profitable.
Roblox’s valuation may well fall further. Of particular concern is a 1 per cent decline in the number of daily users and the 11 per cent drop in user hours in the US and Canada — Roblox’s core markets — during the fourth quarter. Investors should also raise eyebrows at losses that are growing in tandem with revenues.
Roblox executives say they are investing heavily to expand the user base beyond a demographic of kids under the age of 13. But this may open another can of worms.
Like Facebook and other social media sites, Roblox is struggling to police the virtual worlds on its platform. Parents have complained about games that depict avatars engaging in graphic sexual activity or re-enacting mass shootings. The presence of abusive older users would give parents just one more reason to impound kids’ devices and push them outside to play.
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