RBLX Stock: Will New Google Partnership Legitimize Roblox?

Founded in 2004, San Mateo-based Roblox [RBLX] provides users with digital tools to create and play what the company calls “immersive multiplayer experiences”. 

Especially popular in the under-18 market, the platform had achieved 85.3 million daily active users as of the end of 2024. 

Immediately following its IPO in March 2021, the stock gained significant investor attention, its share price peaking at the end of the year. Interest has fluctuated since, with some writing it off as a meme stock not unlike GameStop [GME], whose previously unremarkable valuation rose sharply in early 2021 thanks to an influx of retail investors. 

However, the platform has since gained a reputation for innovation, with a recent advertising deal with Alphabet’s [GOOGL] Google turning heads. 

OPTO examines the fundamentals underlying RBLX stock, how it compares to competitors, and what recent developments could mean for its share price. 

Immersive Ads

On April 1, Google announced a partnership with Roblox that allows advertisers to buy the gaming platform’s Rewarded Video format, which gives users incentives like in-game currency for watching advertisement. 

By integrating marketing materials into the gaming experience — “a billboard ad you see driving through a virtual city or an ad on the big screen during a virtual football game”, as Google explained in a press release — the partnership could help companies reach Roblox’s young and growing user base. 

Meanwhile, the company’s fundamentals offer promising signs, with its Q4 earnings released on February 6 surpassing previous guidance. Most notably, the company achieved a 32% year-over-year increase in revenue to $988m, while bookings grew 21% to $1.36bn and daily active users grew 19% to 85.3m.

The company has had its challenges, however. 

In August 2024, Turkey blocked access to the platform, alleging its contents could lead to child abuse. The country is a significant market for Roblox; the company has reportedly said it will open an office there if access is restored.

According to information obtained by Bloomberg in February, the US Securities and Exchange Commission is actively investigating Roblox. Although the focus of the investigation remains unclear, it could relate to concerns of child safety on the platform.

Perhaps to address this, the platform launched a number of new safety measures in March, including giving parents the ability to block their children from specific games or experiences.

Meme-worthy Growth?

In Roblox’s first public trading round on March 21, 2021, share prices rose from $64.50 to $69.50, putting the company’s market cap at over $38bn — well above the $29.5bn valuation achieved in a private funding round in January of that year. 

Investor appetite for the stock remained strong for the rest of the year, buoyed in part by the platform’s surge in popularity during the Covid-19 pandemic. 

RBLX stock reached an all-time high of $141.60 on November 22, 2021, before beginning a steep decline and trading largely flat for a number of years. 

The stock experienced another, more modest peak at the beginning of the year, briefly surpassing its opening day price in the lead up to its Q4 2024 earnings call on February 6, before declining amid a wider market selloff. 

RBLX was down 11.48% year-to-date as of April 8, and up 35.43% in the past 12 months, although its close of $51.22 remained 26.30% below its first-day close.  

RBLX vs RDT vs U

Roblox straddles both the social media and the gaming themes, enabling it to compete with companies in both spheres. Reddit [RDDT] and Unity [U] offer valuable comparisons, thanks to the former’s focus on advertising revenue and the latter’s status as a representative of the broader gaming space.   

Unity has fallen foul of the wider malaise affecting the gaming theme, languishing well below its pandemic-era peaks. In Q4 its overall revenue fell 24.96% year-over-year to $457m, partly as a result of an announced portfolio reset.

However, while the company provided modest Q1 guidance, the launch of Unity Vector, its artificial intelligence-powered (AI) ad platform, could help the company boost growth in the medium term.

Reddit, meanwhile, went public well after the pandemic. 

Its share price peaked in early February in the lead-up to its Q4 and FY 2024 earnings call, amid investor enthusiasm regarding its use of AI to reach new markets and its potential to scoop up advertising revenue from ByteDance’s TikTok. 

In its Q4 and FY 2024 earnings report, the company saw a record $1.3bn in revenue for the full year, up 62% percent. This growth was buoyed by a strong advertising business, with international ad revenue rising 77%, and a 39% year-over-year increase in daily active users.

Source: Yahoo Finance

Unity’s woes are apparent in its middling expectations for growth, although it does boast a lower P/S ratio than either RBLX or RDDT. While Roblox had yet to turn a profit, its encouraging growth forecast — despite being the largest of the three companies — could fuel investor optimism. 

RBLX Stock: The Investment Case

The Bull Case for Roblox

Buoyant growth, strong fundamentals and a groundbreaking partnership with a tech giant all have investors hopeful about Roblox’s prospects. 

Of the 33 analysts surveyed by LSEG in April, five rated it a ‘buy’ while 14 rated it an ‘outperform’. The high target price of $83.00 represented a 62.05% increase from the April 8 closing price. 

Additionally, in 2024 the company’s free cash flow was $641m, over five times higher than 2023.

The Bear Case for Roblox

Despite the platform’s heady growth, the wider gaming sector remains in a slump. Some analysts expect this to continue as consumer sentiment falls amid macroeconomic uncertainty. 

With RBLX share prices not far from their 52-week highs, some investors doubt the stock has much more room to grow.  

Several prominent insider sales — including from CFO Michael Guthrie and Chief Safety Officer Matthew Kaufman — could indicate the stock is overvalued. Additionally, institutional investors sold nearly $650m worth of the stock in Q4, most notably Cathie Wood, who sold 1.7 million shares, or 14.3% of her total holdings. 

Roblox logged a loss of $940.6m in 2024, a figure that the company expects to widen to between $995bn and $1.07bn in 2025. While much of this is being funneled to research and development, the impact on margins in the near term is clear. 

Conclusion

Despite continuing macroeconomic turmoil, investors are hopeful that RBLX will continue to grow, supported by increased advertiser revenue and positive free cash flow. However, a diminished appetite for risk could turn some investors away from what remains a pre-profit company.