Growth stock Roblox (NYSE:RBLX) tumbled 15% earlier this week in my ISA portfolio. This is the virtual gaming company that any parent of tweens will probably be keenly aware of.
Or not so keen if they’re forking out for Robux — the platform’s virtual currency — like I do occasionally for my daughter (if she’s been good).
But this is precisely why I invested in the company — its extreme relevance with younger generations. Indeed, I would say only YouTube and TikTok are as popular with most young Western kids today.
Some may see that as a sad indictment of our times, but that’s the reality we’re living in.
From an investing perspective, getting in early enough on consumer platforms that tens (or hundreds) of millions choose to interact with can be very lucrative. Think Netflix (up 905% in 10 years) or Spotify (up 200% in eight years). Meta has also outperformed long term.
Roblox gets called the ‘YouTube of gaming’. Like uploading a video to YouTube, Roblox offers accessible tools that allow creators to build, publish and make money from gaming experiences. And the long-term monetisation potential could be very large.
Which begs the question: why did the stock crash?
Lowered guidance
Unfortunately, Roblox may be familiar to people without young kids due to the negative headlines about predatory behaviour towards children on its platform. As a parent (and shareholder), this is definitely something that worries me.
Therefore, I’m glad to see it has rolled out mandatory age-verification and restricted communication for users who haven’t complied. In its Q1 results released Thursday (30 April), the firm said it has seen a meaningful improvement in relevant safety metrics.
But the platform was banned in Russia in December. And this, combined with ongoing player friction due to the safety measures, has resulted in management lowering its full-year bookings growth guidance to 8%–12% (down from 22%–26%).
Obviously, this is a significant haircut. The stock was already down nearly 50% before this news, suggesting that safety headwinds were already been priced in. But clearly not enough, given the market reaction.
What I’m doing?
Roblox wasn’t a large position for me (and it’s even smaller now!). So what should I do?
Well, for a start, I don’t think the long-term investment thesis is broken. The firm expects full-year revenue growth to be in the range of 20%–25%, and daily active users are still well north of 100m, even if this figure is currently under pressure.
Hours engaged topped 31bn in Q1, up 43% year on year. And while there’s clearly lumpiness with Roblox’s metrics due to the unpredictability of hit games, the long-term trajectory still appears to point upwards.
Crucially, the 18–34 age cohort is now Roblox’s fastest-growing group. These older gamers spend 1.5 times more money on Robux than younger users, proving the platform isn’t just for kids.
To attract more older users, it’s investing heavily in AI to allow creators to build photorealistic experiences and lifelike avatars.
Today, Roblox’s financials are quite messy, as it pays out significant stock-based compensation. Yet the large advertising opportunity (big brands, immersive billboards, etc) remains largely untapped.
I’m going to keep holding my shares. But Roblox is in the higher-risk category, so I don’t think investors considering it should bet the farm.
