‍Published - November 11, 2022 @ 2:45 PM (EET)

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It's been a challenging week for Roblox (NYSE:RBLX), with its stock plunging more than 20% Wednesday after the online video game company reported a larger-than-expected loss for the third quarter.

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Though revenue (what Roblox calls bookings) came in above estimates, rising 10% year-over-year, the company reported a loss per share of $0.50, lower than a loss of $0.30 per share analysts projected.

For the quarter, adjusted EBITDA came in at $50.9 million, well below estimates of $59.6 million.

Up 24% from a year earlier, Roblox reported 58.8 million average daily active users (DAUs), and up from the 52.2 million it posted in its previous quarter.

Bookings came in at $702 million, while the company said hours engaged increased by 20% to 13.4 billion.  Meanwhile, average bookings per DAU was $11.94, down 11% year over year.

Wall Street seemed more concerned about Roblox's worsening profitability, having reported negative free cash flow in each of the last two quarters.

However, the stock sell-off seems overdone based on how management characterized the business momentum starting to take shape.

Roblox management, led by David Baszucki, said it continued to see positive trends in monetizing its platform as conversion rates remain strong.  It also added that it remains committed to a disciplined capital allocation strategy.

NOW WHAT

In a letter to shareholders, Roblox said it expects fourth-quarter bookings to hit a new peak by bringing in older users.  

Yet analysts are skeptical as its platform is still considered mainly for children, with daily active users between the ages of 17 and 24, and a long way from engaging with an older cohort.

On Thursday, JP Morgan analyst David Karnovsky downgraded shares of Roblox from Overweight to Neutral and slashed his 12-month price target from $53 to $35.

Elsewhere, Barclays, which recently started coverage on Roblox, called it a "fading call option on the metaverse," suggesting user base growth started stagnating since the pandemic.

Following the earlier sell-off, Roblox rallied along with the rest of the market Thursday, up 7.4% over news that inflation cooled in October.