Roblox Lost $1.2 Billion in 2023. What Investors Need to Know

Roblox (NYSE:RBLX) is still a long way from generating sustainable profits. The online game platform and game creation system recently reported that its net losses actually expanded between 2022 and 2023. Yet there was plenty of good news in the Q4 announcement, including positive engagement metrics and improving cash flow.

Let's take a closer look at Roblox's 2023 losses and its prospects for market-beating shareholder returns from here.

Roblox saw increased losses but positive free cash flow

Roblox's earnings trends look discouraging at first glance. Even though many of its peer tech companies were focused on cutting costs in 2023, Roblox generated $1.2 billion of red ink for the year compared to $900 million in losses in the prior year. Management warned investors not to count on a quick end to this situation, either. "We expect to continue to report net losses for the foreseeable future," executives said in a letter to shareholders.

The financial situation isn't as bad as it might seem at first blush. That's because Roblox books revenue over a period of many months even though it collects cash up front when users buy its digital currency. Cash flow, then, is a better figure to follow than net income when judging its growth potential.

That metric is on the upswing. Free cash flow was $124 million last year compared to a $60 million loss in 2022. This success helped the company boost its cash holdings to over $3.2 billion while debt is sitting at $1 billion. "Our liquidity has never been better," management said.

Roblox users are staying engaged

The company's core growth metrics are impressive. Roblox boosted its user base by about 20% this past year, for example, and its engagement hours improved at about the same healthy pace. These spikes mean Roblox is having no trouble attracting a bigger audience for its immersive digital experiences.

Increasingly, these gains come from areas outside of Roblox's core market of younger users located in the United States. The company is expanding out of this relatively small area to capture older demographics and international geographies. Wins here could significantly expand its addressable market over the coming years, yet investors will have to stay tuned for signs of real progress on accelerating growth.

It's also a good sign that users are spending more cash on the platform. On average, paying users are shelling out about $24 per month right now, up 5% year over year.

The stock price check

The stock's value depends on whether you believe Roblox can extend its growth momentum while improving its annual cash flow production in 2024 and beyond. On the bright side, there's room for accelerating sales gains and big steps toward profitability in the next few years as the platform expands and becomes more immersive. And Roblox is in no danger of cash crunch thanks to its ample savings and the fact that the business has returned to positive cash flow following last year's growth hangover.

On the other hand, shares could easily decline if Roblox doesn't live up to the lofty expectations that Wall Street has for the business. The stock's price-to-sales ratio of 10 seems high given the company's significant losses over the past few years and its guidance for further red ink ahead. That's why this risky growth stock seems worth simply watching for now.

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Demitri Kalogeropoulos 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.