Online video game platform Roblox (NYSE:RBLX) has surged over the last year, with share prices up over 190 percent. The platform has massively democratized game creation, and over 2.5 million developers have created their own games using Roblox.
Is Roblox stock a buy now, or has the market bid RBLX too high for it to still be appealing to investors today?
Losses Persist But Revenues Up
Roblox’s history of revenue growth is impressive, with the business having delivered positive year-over-year revenue numbers in every quarter since 2021. Even more impressively, all but two of those quarters have seen revenue rise by double-digit percentages compared to the previous year.
Revenue growth stayed high in Q1, with Roblox reporting a 29 percent year-over-year increase to $1.03 billion. This mushrooming coincided with strong user uptrends.
Average daily active users for the quarter totaled 97.8 million, a 26 percent increase from the same period in 2024. Hours of engagement rose 30 percent to 21.7 billion. Average bookings per active user, meanwhile, increased 4 percent year-over-year to $12.34.
Perhaps the strongest result in the Q1 report was a massive expansion of free cash flow, which rose 123 percent to $426.5 million. Management did point out that this extremely high rate was bolstered by the delay of a large payment that was originally going to be made in Q1 but would instead be made in Q2. Even with that baked in, however, FCF would have expanded by 108 percent.
One area where Roblox has struggled, however, is in its net earnings. The business has consistently posted losses in every quarter of its public history, with the net loss in Q1 of this year totaling $216.3 million.
Though numbers in the red have been shrinking somewhat over the last year and EBITDA has entered positive territory, Roblox is still far from net profitability. This year, management’s guidance calls for a net loss of $977 million to $1.04 billion.
Roblox’s High Price Tag
One of the first things that will likely stand out to most investors looking at Roblox is its sky-high valuation. Shares of RBLX are trading at 20.3x sales, 88.6x operating cash flow and a massive 258.3 times book value.
These multiples imply very high growth rates persisting over a long period of time, and failure on the part of Roblox to deliver those results could set the stock up for a selloff.
Analysts remain fairly bullish on RBLX, with the consensus rating of buy supported by 15 of the 24 analysts currently covering the stock. However, Roblox has risen further than most analysts expected it to.
The consensus price target of $107.02 is 11 percent below the $118.33 price tag Roblox is currently trading for. As such, it appears that Roblox may have gotten out in front of even fairly optimistic assumptions about its potential for upside.
Can Roblox Outgrow Its Valuation?
In addition to its current performance, it’s important to take Roblox’s growth plans into account. One of the largest recent developments at Roblox has been the creation of an IP licensing platform that allows Roblox creators to easily use licensed intellectual property under terms managed by the IP owner. The platform was announced alongside a slate of large IP partners that included Lionsgate and Netflix.
Roblox has also set the ambitious goal of capturing 10 percent of the global revenue for gaming content going forward.
With the overall video game market expected to grow at a compounded annual rate of over 12 percent through the rest of this decade, Roblox could keep delivering substantial revenue growth for several more years to come if it can successfully increase its market share as it plans to.
One of the keys to Roblox generating the growth it needs will be expanding its base of paid users. Here, the business is already delivering very respectable performance.
In Q1, the number of unique paid users rose to 20.2 million, up 29 percent from the year-ago quarter. This growth rate is quite impressive, but it’s worth noting that the number of paid users on the Roblox platform is still fairly small in comparison to the total daily active user base.
Is Roblox Stock Undervalued?
With Roblox’s revenues still rising at very rapid rates and the video game market as a whole expected to keep expanding steadily throughout this decade, it’s not difficult to see the bull case for RBLX stock. Roblox’s growth could, in time, make the business far more valuable than it is today.
Some support for this view may be found in the institutional investing activity in Roblox. Institutional investors have kept buying at a much brisker pace than selling since late last year. In the last six months, large investors have bought $62.4 billion worth of RBLX while selling $39.5 billion. The willingness of large investors to keep buying at ever-higher prices may indicate that Wall Street still sees room for RBLX to run.
There are, however, two primary problems for Roblox. The first is its valuation, which makes a high rate of ongoing growth a necessity in order to avoid share prices falling.
The second and more fundamental problem is the fact that Roblox has made little progress toward achieving net profitability despite its exceptional revenue growth. With earnings still uncertain, RBLX may or may not be able to fully justify the price at which it is trading today in the long run.
At the moment, RBLX may be just a bit too expensive and risky to be a buy. Though the growth of the business is extremely impressive, it has yet to demonstrate that it can operate profitably. Furthermore, at least some of the stock’s valuation premium today seems to be based on the assumption that it will achieve its goal of 10 percent of global video game content revenues.
As such, Roblox is likely more of a hold than a buy, as investors may want to wait and see how the business develops before paying such high prices for RBLX shares.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.