Roblox (RBLX -5.34%) and Coinbase (COIN -11.27%) have been two of the market’s hottest development shares final 12 months. Roblox went public through a direct itemizing final March, and it began buying and selling at $64.50 and surged to an all-time excessive of $134.72 final November. It now trades at lower than $50.
Coinbase additionally went public via a direct itemizing final April. It began buying and selling at $381, endured a unstable buying and selling session earlier than closing at $310 on the primary day, and finally closed at an all-time excessive of $357.39 final November. At the moment, the inventory trades at about $90.
Roblox and Coinbase each benefited from pandemic-related tailwinds. The usage of Roblox’s gaming platform skyrocketed as extra youngsters stayed dwelling, whereas a stimulus-induced surge in speculative buying and selling and rising cryptocurrency costs boosted Coinbase’s buying and selling volumes.
However over the previous 12 months, each firms struggled with decelerating income development and widening losses in a post-lockdown world. Rising rates of interest exacerbated that ache by driving traders away from speculative development shares. However might both of those battered shares bounce again over the long run?
Roblox’s momentum is fading
Roblox’s gaming platform allows its customers to create easy block-based video games with none coding information, share them with different customers, and monetize them with in-game content material to earn an in-game forex referred to as Robux. This easy and self-sufficient enterprise mannequin drew loads of youthful customers in the course of the pandemic.
Roblox’s bookings, which extra precisely replicate underlying development than its income by gauging direct gross sales of Robux, rose 171% to $1.9 billion in 2020 and grew 45% to $2.7 billion in 2021. Nevertheless, bookings declined 12 months over 12 months within the first two quarters of 2022, and analysts count on complete bookings to rise simply 3% to $2.8 billion for the complete 12 months.
Roblox’s engagement charges are additionally slipping. Day by day energetic customers (DAUs) grew 21% 12 months over 12 months to 52.2 million within the second quarter, however that represented a lack of 1.9 million DAUs from the primary quarter. Common hours engaged elevated 16% 12 months over 12 months to 11.3 billion, however that additionally marked a sequential decline of 500 million hours. Lively customers are additionally spending much less cash: Common bookings per DAU have fallen 12 months over 12 months for 4 consecutive quarters.
Roblox is making an attempt to offset that slowdown by increasing past the U.S. and Canada, however that is a double-edged sword as a result of it generates considerably decrease bookings from worldwide customers. It is also pursuing older customers to cut back dependence on its core market of fickle tweens, however that strategic shift might muddy its id as a child-friendly gaming platform.
In the meantime, Roblox’s losses proceed to worsen. Its web loss widened from $253 million in 2020 to $492 million in 2021, then deepened 12 months over 12 months from $274 million to $337 million within the first half of 2022. Analysts count on it to stay unprofitable for the foreseeable future.
Coinbase faces a crypto winter
As one of many largest cryptocurrency exchanges on the planet, Coinbase is firmly tethered to the crypto market. Sadly, the market’s waning curiosity in cryptocurrencies — attributable to tumbling costs, the failures of a number of high-profile cash, and the specter of tighter business laws — has solid a darkish cloud over its future.
Income rose 139% to $1.1 billion in 2020 and surged 514% to $7.4 billion in 2021. However this 12 months, analysts count on income to say no 57% to $3.4 billion because it braces for the “crypto winter” that CEO Brian Armstrong ominously warned about in June.
For the complete 12 months, Coinbase expects common month-to-month transacting customers (MTUs) to return in between 7 million and 9 million, which might symbolize a major decline from 11.4 million common MTUs in 2021. It additionally expects common transaction income per person to plunge from $64 in 2021 to the low $20s as these remaining customers place fewer trades.
As Coinbase’s income development decelerates, earnings are collapsing. It expects to rack up a loss in adjusted EBITDA (earnings earlier than curiosity, taxes, depreciation, and amortization) of about $500 million in 2022, in comparison with optimistic adjusted EBITDA of $4.1 billion in 2021. And that is even after it laid off 18% of its workforce earlier this 12 months. Analysts count on it to remain unprofitable for the following few years.
The valuations and verdict
Roblox trades at 10 instances this 12 months’s bookings, whereas Coinbase trades at seven instances this 12 months’s gross sales. Neither inventory is a screaming cut price but, and each face daunting near-term challenges.
I would not rush to purchase both inventory proper now. But when I had to decide on one over the opposite, I might purchase Coinbase as a result of it has a clearer path towards a restoration if the cryptocurrency market stabilizes. In the meantime, Roblox hasn’t proved that its enterprise mannequin is sustainable — or that it’s not merely a passing fad.