What’s the metaverse? It’s a virtual world in which people hang out, attend meetings and play games as avatars.

It’s generating tons of buzz. But shares of video game developer Roblox, an industry leader, are down 16% in premarket trading on Wednesday after the company’s earnings missed expectations.

While average daily active users hit 49.5 million, up 33% year-over-year, bookings — which measures the amount of virtual currency purchased by users to upgrade their avatars — fell short of forecasts.

The platform, which is super popular with kids, has been a go-to for investors looking to get in on the tech industry’s push to make the metaverse the next big thing.

In a note to clients earlier this week, Bank of America analyst Omar Dessouky said the metaverse as an investment class “is now like social media at its dawn.”

He said Roblox, which had a market value of more than $42 billion as of Tuesday’s close, “bears resemblance to a young tech giant,” even though it was founded in 2004.

Driving the hype

Roblox has a head start on competitors, which Bank of America expects will be slower to reinvent themselves as metaverse companies. Roblox’s control of the technology that underpins its platform, from development tools to graphics software and data centers, allows it to innovate quickly. And in the future, its immersive online world may not just be for children, as Roblox works to build a digital environment — and economy — that’s “increasingly engaging and indistinguishable from the real world.”

“We think teenagers, and potentially adults, could eventually view Roblox as a multi-purpose platform, similar to how social networks were viewed as such as they grew beyond their core university student demographic,” Dessouky said.

That’s the promise, at least. But it may require investors to have cast-iron stomachs as more speculative investments take a hit.

Shares of Roblox, which were given a $45 reference price when they made their stock market debut last year, finished Tuesday at $73.30 apiece.

But they’ve plunged 29% so far this year as Wall Street has soured on the tech sector, which looks less attractive as the Federal Reserve prepares to hike interest rates. Any weakness in earnings doesn’t help.

It’s not the only metaverse stock to pull back recently. Unity Software, a platform for creating 3D content, has seen its shares plummet 21% this year. They’re down another 2% in premarket trading Wednesday.

And Facebook’s Meta, which is taking steps to completely rebrand itself as a metaverse-focused company, has plunged 34% this year as disappointed investors note that the pivot could take years to pay off. The company indicated Tuesday it would now refer to employees as “Metamates.”

That doesn’t mean Wall Street’s metaverse frenzy has passed. But at a rocky moment for the market, some of the initial enthusiasm seems to have cooled.

(C) CNN