Shares of Roblox dropped more than 11% in late Thursday trading after the company reported a larger-than-expected climb in operating expenses, raising questions over the sustainability of its business model.
The gaming platform said total operating expenses surged 68% to $485.6 million in the just-ended quarter, driven by an increase in personnel-related costs, external services and tech costs.
Roblox was further hit by rising costs due to the pressure of competition in the industry, resulting in higher marketing and product development costs. As a result, the company reported a loss of $92.8 million in the period, up from a loss of $68 million a year ago but narrower than the $107 million loss in the previous quarter.
Revenue attributable to the company rose 94% to $387.2 million in the fourth quarter, driven by a surge in active users and increase in average revenue per user (ARPU). However, Roblox’s soaring costs continued to outpace the revenue growth.
Roblox is looking to find solutions to help control the rising costs and has already announced plans to reduce the number of acquisitions it makes in the near future in order to focus on developing its own in-house technology and widening its global presence.
However, investors remain wary about future prospects as competition in the sector intensifies and the costs to acquire and retain users climb.
Roblox is not the only gaming platform struggling to manage its costs. Competitors, such as Epic Games and Zynga experienced similar pressures in recent quarters, which has prompted a shift from an acquisition-led strategy to focusing on in-house product development and marketing.
Roblox’s stock has been volatile in 2021, though the company and its business remain intertwined with Wall Street’s broader technology sector performance. The stock is up 63% year to date, despite its latest trading slump.
