Roblox

Roblox had a terrible second quarter across virtually every engagement and payment metric, resulting in bookings growing only 8% year over year, after averaging at least 19% each quarter since 2022 and 55% last year. Management expects the third quarter to be weak and suspended full-year guidance.

Why it matters: Roblox's valuation is dependent on high growth and a continued ramping of user engagement and monetization. Everything took a step backwards this quarter, and growth is now in question. Roblox had only 123 million daily active users during the quarter, down from a peak of 152 million during the third quarter, marking the third-straight sequential decline. Monthly unique players have followed a similar trend and were down to 27 million, from a peak of 37 million two quarters ago. Management attributed the weak metrics in large part to the lack of viral games and consumer gravitation toward games with less monetization opportunity. We don't doubt this is true, but this also leads to the conclusion that Roblox does not control—and will have difficulty—achieving the 20% annual top-line growth it expects over the long term.

The bottom line: We anticipate reducing our $55 fair value estimate by $5-$10, due to weaker near-term bookings than we had anticipated and a slower cadence of margin expansion, as Roblox will not get as much leverage on costs that it must still undertake to grow. We already projected much lower sales growth than management did, with only about 10% annually throughout our 10-year forecast, with midteens growth through the rest of this decade dropping to single digits after 2030. Just as we cautioned against assuming that last year's blowout results were likely to be maintainable, we think it's premature to assume Roblox cannot revive user and monetization growth. We simply believe that results will continue to be volatile, and the stock overreacts in both directions.

We are reducing our fair value estimate to $45 from $55 following the growth setback that Roblox revealed in its second-quarter 2026 results. In our view, the market has shown a pattern of overreacting to near-term results in both directions. We expect Roblox to continue its upward trend throughout our forecast, but growth may be in fits and starts. In other words, when Roblox makes outsize gains, as it did in 2025 following viral hits on its platform, it will need a digestion period, during which it may shed users who were just in for the craze. And when there’s a backtracking following such a spike, we expect a recovery as the long-term growth trajectory stabilizes.

Overall, we project the firm to average mid- to high-teens growth from 2026-30 and low-double-digit growth after that. The deceleration over the second half of our forecast is mostly attributable to the larger existing user base and the longer it will therefore take to move the needle, but it also considers the smaller untapped market that will then remain. We expect Roblox to continue attracting kids and teenagers who will outgrow the experience as they age. We project daily active users, or DAUs, to grow at only a mid-single-digit rate, on average, over the next decade and eclipse 200 million DAUs by 2033, from 144 million at the end of 2025.

Better monetization of users is as critical to our growth forecast as is the growing user base. While we don't necessarily expect a greater proportion of daily active users to become paying users, we expect much more growth in sales per DAU than the firm has historically realized. We project average bookings per DAU to grow at a 5% annual average rate throughout our forecast after growing only marginally since 2022. Through 2025, average bookings per DAU have still not reached the levels they did in 2021, as monetization has not kept up with user growth since then. We don’t expect a big turn-up in users’ average spending, but we believe the firm has a material opportunity as it sells more advertising, which will boost bookings associated with each user.

Roblox returned to adjusted EBITDA profitability in 2024 after sizable losses in the prior two years. After achieving a 25% margin in 2025, we expect backtracking to the midteens in 2026 and 2027 on heightened costs, most notably on infrastructure and security. After 2027, we forecast operating leverage to return. We project a 23% adjusted EBITDA margin in 2028, rising to 31% by 2035.

We assign Roblox a narrow moat based on a network effect. We believe the user base Roblox has already achieved will drive continuous improvements in game quality on its platform and attract more users and brands to the Roblox universe. Furthermore, we believe this will lead Roblox to continue its trend toward profitability and excess returns on invested capital.

Roblox has created a virtual universe where users ostensibly come to play video games, but on a more basic level, they come to inhabit this virtual universe. Users can create and customize their avatars and use them in a wide variety of games on the platform. Games are free to play, but users can spend money within games and the broader platform for customization or higher levels of capabilities. Users play games with others in the community, and the platform serves as a mode of social connection and communication. About 40% of Roblox users are younger than 13 years old, and we estimate that, as of the end of 2023, roughly 80% were younger than 25.

Content on the Roblox platform is community-generated, so anyone can create or develop video games for the platform. The platform has millions of games created or updated by millions of developers. Roblox offers a proprietary tool set for anyone to use, giving even those without resources or programming knowledge the means to build and publish games. The creator and developer community ranges from young users of the Roblox platform to professional studios.

The creation and establishment of this virtual universe underpins the network effect behind Roblox's moat, with the network effect showing itself in two distinct ways—first between users, and also between users and creators. Since its initial public offering in 2021, Roblox has continued to add new daily active users and paying customers at a double-digit pace. Even at the higher level, daily active users have continued to average about 2.5 hours each day on the platform, and an increasingly higher proportion of the daily active users are teenagers or older.

One place where we see the network effect is with users begetting more users. With users playing games with friends and using the platform as a communication outlet, the platform would hold much less attraction if others, including "real-world" friends, were not on the platform. Roblox is not only a collection of games but also a social connection platform with various experiences. With the scale that Roblox has already achieved—85 million daily active users globally at the end of 2024—even a competing virtual universe that spans a variety of games and connection to the physical world would hold less attraction for users. As is, we see more users gravitating to Roblox to join the social community that already exists.

More importantly, the scale of users that Roblox has attained attracts creators. Creators earn money when users make purchases within their games, and they also have an opportunity for advertising and commerce to flow through their games. Roblox takes a cut of these earnings. Obviously, the monetization opportunity is greatest with the biggest audience and the most users playing the games. Creators of AAA games and the biggest-budget studios will continue to compete in a different category from independents and those without their own big budgets. For those without the resources of a big video game company, the most assured way to maximize earnings will be to build for the platform that already has the biggest audience. Currently, there is no sizable competing platform to Roblox's extensive virtual universe, so these creators would be less likely to build for a competing virtual universe. In 2023, nearly 800 creators earned more than $100,000, about 100 earned at least $1 million, and nine earned more than $10 million. Independent creators will generally be able to maximize earning power by reaching Roblox's large user base, and the growing depth and breadth of games that result will deepen users' preference for the Roblox platform in a cycle that feeds itself.

Although we think Roblox's network effect is strong, we don't believe it has a wide moat because it competes with experiences beyond virtual universes. Even without competition for a similar virtual world, the platform must continue to attract users who want to play the games within the universe. In our view, Roblox is too young to declare that this type of experience will continue to be attractive to players, who can find other free-to-play video games and social media platforms. Therefore, we can readily envision a scenario where the Roblox universe loses its allure to users. The high level of uncertainty keeps us from having virtual certainty that Roblox can achieve excess economic returns over the next 10 years.

With about 125 million daily active users, a young demographic, and a platform that can easily integrate advertising, Roblox has room to exponentially expand its currently small advertising business.

Roblox's user base is fairly evenly distributed across the major continents, meaning, it's already established, and each should have a runway of further penetration opportunities.

Roblox’s user base has been slowly shifting to an older demographic compared with the preteen core of users. This results in users who may have more money to spend and a larger target market.

Games on Roblox are not overly sophisticated, so it's quite conceivable that another free game or fad could take users' attention off the platform.

Roblox's users are predominantly teenagers or younger, meaning, Roblox must constantly attract the emerging young age groups as older teenagers and young adults age out.

The firm might face greater regulatory scrutiny and costs regarding children's exposure to content and liabilities from the games creators develop.