Roblox's Big Dip: A Chance to Get in on the Vaunted Gaming Stock?

Key Points

• Roblox has become one of the world's most popular gaming environments over the past several years.
• The company is working to achieve its goal of capturing 10% of the gaming market.
• Is their an attractive opportunity in shares after the stock's big post-earnings dip?

Roblox NYSE: RBLX, one of the hotter stocks in the gaming industry over the past 52 weeks, just had much of its 2025 gains wiped out. Prior to the company’s latest earnings report, shares were up over 30% on the year. As of the Feb. 13 close, markets have pared those gains down to just 13%. The company’s mixed financial results ultimately did not impress the market, leading to a significant sell-off.

The company has outlined an ambitious goal of capturing 10% of global gaming market share. So, are its latest results simply a bump in the road toward meeting that extraordinary target, and is there now an attractive opportunity in the name? I’ll dive into the most important aspects of the company’s report to assess this question.

Roblox: Seemingly Solid Report, But Underlying Metrics Raise Concerns

Roblox’s bottom-line performance was better than expected. The company narrowed its loss significantly to $0.33 per share, 12 cents better than consensus forecasts. The company reported bookings of $1.36 billion. This was a solid growth rate of 21% and missed expectations by only $10 million. For Roblox, analysts consider bookings a better representation of growth than revenue.

The company expects bookings to reach $5.25 billion for the full year 2025, which would equal a growth rate of 20% over 2024. This was essentially in line with expectations. Based on these figures, it doesn’t initially make sense why shares dropped over 11% in one day.

That is at least before considering a key metric: daily average users. The figure fell by 3.6 million users, marking the first sequential decline since Q2 2023. Analysts predicted the number would fall by only 500,000. Seeing this metric continue to grow is important, as it correlates with future revenue growth. Many Roblox gamers play without making purchases, but they are more likely to make purchases the longer they play. As daily active users grow, so does the pool of people who could potentially spend in the Roblox ecosystem.

Dissecting the Drop in Daily Active Users

Overall, management didn’t offer much commentary on what drove the sequential decline in users. One explanation offered by Wedbush analyst Michael Patcher surrounded the company’s new parental control features that it implemented in Nov. 2024. These new features give parents more control over the ways children under 13 can interact with the platform. This includes the option to restrict chat features, a big part of the way people use Roblox. By far, the company’s most popular game, Brookhaven RP, relies largely on chatting.

An interesting way to assess this claim is to look into the breakdown of how daily active users changed by age group. Of the 3.6 million user reduction, 2 million of these came from players 13 and younger. That’s about 55%. The other 45% of the drop came from users over 13. That doesn’t seem like enough of a difference to attribute the drop in users primarily to these parental controls. It is also important to note that some of the parental controls didn’t go into effect until the first quarter of 2025. The Q4 2024 report wouldn’t have felt the effect of those features. At this point, it is hard to say whether the decline in daily active users is a flash in the pan or something more pervasive.

The decline in the stock post-earnings wasn’t broadly reflected in analyst price target changes. Only one analyst tracked by MarketBeat lowered their target. Four raised their target, and two reiterated. However, the average of these price target updates still signals a 3% downside in shares.

Roblox: Strong Growth, But Valuation Is Still Lofty

Overall, Roblox is still growing impressively and faster than many big competitors. In Q3, Tencent OTCMKTS: TCEHY, the global leader in gaming revenue, saw its gaming revenue grow by under 13%. Tech giant Microsoft's NASDAQ: MSFT Xbox content and services revenue grew by just 2% in Q4. However, Roblox is by no means a cheap stock, even after this recent decline. Its forward price-to-sales ratio of over 8x is exceedingly high compared to other communication services stocks.

The company is getting closer to its 10% market share goal, but it will still take a long time to get there. With daily users dropping sharply and a high valuation, I think it's wise to wait and see how the company recovers next quarter before getting too excited. This will also give more insight into the effect of parental controls, which is a risk.