Roblox’s Stock Takes a Hit: Is This the Right Time to Buy?
Roblox (NYSE: RBLX) saw its share prices fall substantially after the company announced its disappointing guidance. This downturn has tempered what started as a strong year for the stock, although it remains up over 13.5% this year. Over the last 12 months, the stock has climbed about 48%.
Let’s take a closer look at the company’s financial results to see if this decline presents a buying opportunity.
Where to invest $1,000 now? Our analysts recently shared their top 10 stocks to buy. Learn More »
Bookings Disappoint Investors
Bookings are a critical measure for Roblox, influencing how the company recognizes its revenue. Roblox takes a 30% cut of each virtual dollar spent, known as Robux. The balance goes to game developers and distributors.
When users purchase Robux, Roblox records it as deferred revenue—classified as bookings—on its balance sheet. This revenue is recognized only when virtual items are bought. Items that can be used up are recorded as revenue immediately, while durable items, like outfits for characters, are recognized as revenue over time. Most items sold fall into the latter category.
Bookings are considered a more accurate indicator of user spending than revenue itself. For the fourth quarter, Roblox’s bookings increased by 21% compared to the previous year, reaching $1.36 billion. However, the company projected 2025 bookings to be between $5.2 billion and $5.3 billion, slightly below what analysts had estimated—$1.37 billion for Q4 (according to LSEG) and $5.3 billion for 2025 (according to FactSet).
While daily active users grew by 19% to 85.3 million, this fell short of the analyst estimate of 88.2 million (according to StreetAccount). This shortfall suggests potential declines in long-term revenue. Notably, much of the growth in active users is attributed to significant increases in Japan and India, both exceeding 50%. However, average bookings per daily active user rose only 1% to $15.97.
Image source: Getty Images.
Total revenue also rose by 32% year over year to $988.2 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved significantly from a loss of $44.8 million to a profit of $65.6 million. It’s important to note that Roblox heavily relies on stock-based compensation, which skews adjusted EBITDA figures. This practice can dilute shareholder value over time.
The company reported $258.2 million in stock compensation for the quarter and $1 billion for the year. Its share count grew by 5%, increasing from 681.3 million at the end of last year to 714.7 million at the end of Q4, equating to about $2.3 billion in market cap based on current stock pricing.
Looking forward, Roblox anticipates Q1 bookings between $1.125 billion and $1.150 billion, with revenues expected between $990 million and $1.015 billion. It projects adjusted EBITDA in the range of $20 million to $40 million and free cash flow between $340 million and $360 million.
| Q1 Forecast | 2025 Forecast | |
|---|---|---|
| Bookings | $1.125 billion to $1.150 billion | $5.2 billion to $5.3 billion |
| Revenue | $990 million to $1.015 billion | $4.245 billion and $4.345 billion |
| Adjusted EBITDA | $20 million to $40 million | $190 million to $265 million |
| Free cash flow | $340 million to $360 million | $800 million to $860 million |
EBITDA = earnings before interest, taxes, depreciation, and amortization.
Roblox aims to capture 10% of all gaming content spending on its platform; currently, it stands at just 2.4%.
To enhance user experience, the company is integrating artificial intelligence (AI) to allow users to create 3D outfits using text prompts and to improve platform safety.
Is Buying the Dip a Smart Move?
Roblox has attractive growth potential as it expands monetization opportunities, including advertising and shopping partnerships. Notably, major companies, such as Amazon and Shopify, are embracing Roblox for advertising.
However, the heavy reliance on stock compensation, lackluster growth in bookings, and below-expected daily user counts may deter some investors from purchasing at this time. Additionally, the company’s operational costs for infrastructure and safety are considerable. Although the stock had been performing well prior to this earnings dip, it doesn’t appear to be a significant bargain at its current price.
Should You Consider Investing $1,000 in Roblox?
Before making a decision to buy Roblox stock, it’s worth noting:
The Motley Fool Stock Advisor team has identified their top 10 stocks to invest in right now—and Roblox is not among them. The selected stocks have shown the potential for impressive returns in the future.
For instance, if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, you would have seen that turn into $795,728!
Stock Advisor offers investors valuable insights, including portfolio guidance and regular updates from analysts, with two new stock picks each month. Since 2002, the Stock Advisor service has more than quadrupled the returns of the S&P 500.
Learn more »
*Stock Advisor returns as of February 7, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, FactSet Research Systems, Roblox, and Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
