Roblox shares dropped 24% in premarket trading on Friday. The company reported first-quarter results that missed analyst expectations. The faster rollout of child safety measures slowed growth. This led the company to cut its full-year outlook.
Daily active users rose 35% in the first quarter. This was well below the 44% increase Wall Street expected. The company also lowered its bookings forecast for the current period to 8% to 12% growth. This is down from the earlier estimate of 22% to 26%. Analysts said the main challenge was the rollout of age verification. Restrictions on communication for users who had not completed age checks made the experience less enjoyable for everyone. It also slowed the addition of new users.
In its letter to shareholders, Roblox acknowledged that its safety efforts directly affected growth. The company explained that growth slowed more than expected because new age checks limited communication for unverified users. Interaction quality for verified users was also reduced. Still, Roblox said it is committed to keeping the platform safe and age-appropriate worldwide. The company believes the long-term benefits will be significant, even though the short-term financial costs are higher than expected.
Friday’s trading made clear the conflict between investing in safety and delivering returns to shareholders. Adding strong child protection measures is the right thing to do. It makes sense for a platform focused on minors. However, these changes have an immediate negative impact on user engagement and revenue. Investors are reacting to this right now.
TD Cowen upgraded the stock to Hold from Sell during the selloff. During the selloff, TD Cowen upgraded Roblox from a Sell rating to a Hold rating. The firm lowered its price target but said the new guidance and share price now better reflect the company’s short-term outlook. Analysts said the earlier guidance was too optimistic. They believe the changes provide a more realistic starting point for the future.
