Roblox (NYSE: RBLX) has emerged as a compelling stock market comeback story. After a period of sluggish performance, the gaming platform's growth has reaccelerated, achieving a record number of worldwide users. Still, even with the stock trading at a 52-week high at the time of this writing, shares remain 60% below their November 2021 peak.
The good news is that there are plenty of reasons to expect the rally to continue into 2025 and beyond. Here's why.
A fantastic growth stock
More than simply a video game, Roblox combines social interaction with user-created content and community development. The company features a unique business model that generates revenue through the "Robux" virtual currency, a marketplace for digital items, subscriptions, and even advertisements. Its ability to keep users engaged and spending regularly within the ecosystem is the growth driver. The latest operating results have been impressive.
In the third quarter, Roblox hit multiple operating records, starting with its daily active users (DAUs), which climbed by 27% year over year 88.9 million, its highest growth rate since 2021. Similarly, bookings -- an important measure of how much money users are spending on the platform -- increased by 34%, well above the 20% growth rate in Q3 2023.
| Metric | Q4 2022 | Q3 2023 | Q3 2024 |
| DAUs (in millions) | 58.8 | 70.2 | 88.9 |
| DAUs growth (YOY) | 24% | 20% | 27% |
| Bookings (in millions) | $702 | $840 | $1,129 |
| Bookings growth (YOY) | 10% | 20% | 34% |
Source: Roblox. YOY = Year over year
On average, users are spending more hours and more money on the platform than ever before. One driver of those trends has been the expanded availability of Roblox on console platforms, including its launch on the Sony PlayStation system late last year.
As revenue reached $919 million, up 29% from last year, the momentum has translated into an improving financial position. While Roblox is still not profitable, its free cash flow has turned positive, and there are expectations for narrowing losses as the company works to control costs.
Management is projecting confidence, hiking its revenue growth guidance and its target for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The takeaway is that Roblox is entering 2025 on a strong note.
| Metric | 2023 | 2024 (Estimate) |
| Revenue (in billions) | $2.799 | $3.549 to $3.574 |
| Revenue growth (YOY) | 26% | 27% to 28% |
| Adjusted EBITDA (in millions) | ($171) | $125 to $145 |
Source: Roblox. YOY = Year over year.
A catalyst into 2025
Beyond the headline numbers, there's a lot to like about Roblox as a potential investment. With nearly 40% of its users under the age of 13, the company enjoys distinct exposure to members of Gen Z, who are highly active online media consumers. The opportunity for Roblox is to retain this cohort of users as they grow up with an evolving number of experiences within the platform.
The upside for the stock is that the trends may still be in the early stages of a global expansion. An important development for the company was its recent announcement that users can receive 25% more Robux by purchasing virtual currency directly from the Roblox website or gift cards. This offer incentivizes gamers to skip third-party app stores run by companies like Apple and Alphabet that take fees on such sales.
Depending on the program's success, the initiative could boost Roblox's top-line growth and financial margins over the next several quarters as a catalyst for shares to rally higher.
Image source: Getty Images.
Final thoughts
Ultimately, 2025 will be a critical year for Roblox in its efforts to reach sustainable profitability. I'm bullish, and see a good chance its stock price will be higher by this time next year. That said, with the company still operating at a loss and shares trading at a price-to-sales ratio of 8, Roblox will likely remain volatile and sensitive to changing growth expectations.
For investors convinced of a bright future for digital entertainment, Roblox is well-positioned to deliver strong shareholder returns over the long run.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Roblox. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
