• by Colin Kirkland , May 9, 2024

Roblox shares plummeted more than 20% in trading Thursday after the metaverse gaming company cut its annual bookings forecast, signaling a downturn in in-game spending and uncertain economic outlook in the video-gaming industry as a whole. 

The company lowered its full-year bookings guidance to between $4 billion and $4.1 billion, down from $4.14 billion to $4.28 billion.

Its second-quarter bookings forecast of $870 million to $900 million was also below estimates.

“We want to be very transparent, conservative, and responsible, which is why we made the very difficult internal decision to adjust our guidance,” said Roblox founder and CEO David Baszucki during Thursday's investor call.

The number of hours that gamers ages 13 and up spent on Roblox grew 19% in the first quarter, marking the lowest growth rate for the company in two years. Its average daily active users increased 17% to 77.7 million, which also marks the lowest growth rate since the company went public in 2021.

Roblox CFO Michael Guthrie commented that the low growth rate was “not unusual,” taking into account the onboarding of older gamers who take time to get used to a new platform.

The results align with a larger trend in the video-gaming industry, which saw an estimated 0.6% growth in 2023, compared to 8% in 2020, according to research firm Newzoo. Lower engagement is expected to keep growth in the PC and console market below pre-pandemic levels through 2026.

“We want to be optimizing not just short-term improvements in bookings and DAU, but long-term platform health as well,” added Baszucki.

Over the past three quarters, Roblox has aimed for efficiency, making layoffs and slowing hiring, which has helped the company reduce capital expenditures by nearly 50% this quarter compared to last year. The company also generated more free cash flow ($191.1 million) in Q1 than in all of 2023.

To diversify its revenue, Roblox also began testing video ads at the end of 2023, giving revenue sharing opportunities to developers who feature ads in their virtual worlds. Now the company has introduced video ads displaying content from major brands and agencies like Walmart, Warner Bros., and Dentsu.

The company plans on providing forecast for ad revenue in 2025 and expects the business to add to its growth in the following two years.