Roblox (RBLX 0.81%) has been a divisive stock since its public debut four years ago. The gaming platform company's stock opened at $64.50 per share on the first day, and it more than doubled to a record closing price of $134.72 on Nov. 19, 2021.
But as of this writing, Roblox's stock trades at about $56. Its investors fled as it lapped its pandemic-driven growth spurt, racked up more losses, grappled with safety and regulatory issues, and rising interest rates compressed its valuations. So can Roblox bounce back in the future? Let's take a look at three reasons to buy Roblox -- and three reasons to run away.
Image source: Roblox.
What happened to Roblox over the past four years?
Roblox's gaming platform can be used to create games with a simple block-based system that doesn't require any prior coding knowledge. Its creators can share their custom games with other users and monetize them with Robux, an in-game currency which can be bought and exchanged back to real-world currencies.
Roblox was initially launched in 2006, but it experienced a major growth spurt as more tween players logged in during the COVID-19 pandemic in 2020 and 2021. But in 2022, its growth in bookings, daily active users (DAUs), average bookings per DAU (ABPDAU), and engagement hours all decelerated as those tailwinds dissipated.
|
Metric |
2021 |
2022 |
2023 |
2024 |
|---|---|---|---|---|
|
Bookings growth |
45% |
5% |
23% |
24% |
|
DAU growth |
40% |
23% |
22% |
21% |
|
ABPDAU growth |
4% |
(14%) |
0% |
2% |
|
Hours engaged growth |
35% |
19% |
22% |
23% |
Data source: Roblox.
Roblox tried to offset that slowdown by expanding overseas, attracting older users, and allowing more companies to advertise within its "metaverse" worlds. That strategy helped it grow its bookings, DAUs, and engagement hours again, but it barely boosted its ABPDAU because its overseas and older users generally make fewer in-game purchases than its core market of tween creators and players in the U.S. and Canada.
The three reasons to buy Roblox
Roblox might be worth buying today for three reasons: It's still growing rapidly, its sticky ecosystem is expanding, and its valuations are attractive.
With 85.3 million DAUs at the end of the fourth quarter of 2024, Roblox dominates its niche market for creating, sharing, and monetizing user-created games. Like Alphabet's YouTube, it's a creator-driven platform that continuously draws in new players and encourages them to create their own content.
Roblox is also appealing to advertisers because it reaches millions of younger consumers and smoothly integrates its ads as virtual spaces, games, and experiences within its platform. Well-known brands like Nike, Amazon, and e.l.f Beauty have already set up their own metaverse worlds within Roblox.
For 2025, Roblox expects its bookings to grow 19%-21% to $5.2-$5.3 billion. From 2024 to 2027, analysts expect its bookings to increase at a compound annual growth rate (CAGR) of 19%. With an enterprise value of $35.8 billion, Roblox's stock looks reasonably valued relative to those growth rates at 7 times this year's bookings.
NYSE: RBLX
Key Data Points
The three reasons to sell Roblox
However, the bears will argue that Roblox has three major weaknesses: It's still unprofitable on a generally accepted accounting principles (GAAP) basis, it faces unpredictable safety and regulatory headwinds, and its insiders are net sellers.
Roblox is still plowing a lot of its cash into its "developer exchange fees," or the revenue it pays back to its creators for swapping their earned Robux back to real-world currencies. That big expense, which it excludes from its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and other non-GAAP calculations, increased 25% to $923 million in 2024 and matched its total bookings growth.
Roblox's "infrastructure, trust, and safety" expenses also rose 4% to $915 million in 2024 as it ramped up its spending on hiring more staff and raising its guardrails to protect its younger users. Those expenses could continue rising if the platform is hit by more accusations of failing to monitor its user interactions and allowing adults to impersonate children. Those high costs could prevent it from ever breaking even on a GAAP basis.
To make matters worse, the U.S. Securities and Exchange Commission (SEC) recently launched a probe into Roblox as part of an "active investigation." The extent of that investigation is still unclear, but it could weigh down its stock for the foreseeable future. That might be why its insiders sold more than eight times as many shares as they bought over the past 12 months.
Is it smarter to buy or sell Roblox's stock?
Roblox is still growing, it has a wide moat, and it's carving out a niche as a content creation and advertising platform in the nascent metaverse market. However, it hasn't proven its business model is sustainable or that it can consistently protect its younger users from online predators as it expands. Those issues are keeping me away from Roblox right now, but it might be worth buying again if it can overcome those existential challenges.
