Why Roblox Stock Looks Like a Solid Buy Despite Growing Concerns About Safety

Key Points

• Roblox's online gaming platform attracts millions of users every day, which has translated to incredible growth for the business over the years.

• The company has come under fire for not doing enough to protect kids online, but it does have safety measures available for parents.

• 10 stocks we like better than Roblox ›

What I've learned from watching my two kids play Roblox (NYSE: RBLX) is that when it comes to games, what matters most is the overall experience and connectivity with their friends.

Consoles can have realistic-looking graphics and dwarf the blocky-looking games Roblox has to offer, but it's the simplicity of Roblox that wins out for many users. You don't need an expensive console or a computer with cutting-edge technology to run the games, nor is there a complicated plot and storyline to follow. And for young kids, that makes it a go-to option.

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Like with any online platform, however, there are going to be risks. And recently, there have been a growing number of articles and reports about how unsafe Roblox is for kids, and how the company isn't doing enough to protect them when they're online. While that may seem concerning, here's why I wouldn't worry too much about that, and why the gaming stock still has a lot more upside.

Image source: Getty Images.

Are Roblox's safety concerns overblown?

One of the big worries when it comes to Roblox these days is whether the company is doing enough to keep its young users safe from predators. There are attention-grabbing headlines talking about the disturbing concerns that some parents have raised about the gaming platform and how easy it is to access inappropriate content.

I understand the concern, but Roblox has noted that "tens of millions of people have a positive, enriching and safe experience on Roblox every day." My two kids, both under 13, are among them. The platform does have ways to lock down and prevent kids from accessing content that's inappropriate for them and to turn off messaging capabilities.

The reality is that there are significant risks inherent to all internet use by children. Meta Platforms' Facebook and Instagram platforms have also faced challenges in protecting children online from predators. Alphabet 's video-sharing platform, YouTube, sometimes lets kids access inappropriate content that's disguised as kid-friendly, in what's often referred to as Elsagate online.

So, while Roblox isn't without its risks and danger, headlines can be misleading. Without data to suggest the problem is much more significant on Roblox's platform, I'm not focused on these issues. Instead, I think investors should focus on its incredible long-term potential.

Roblox's growth is still in its early phases

Over the past 12 months, Roblox has generated more than $4 billion in revenue. That's more than double what its 2021 annual revenue ($1.9 billion). And yet, there is still far more growth ahead for the company.

Roblox has been expanding into more mature games for older kids, and it is in the early innings of using ads on its platform. With so many growth opportunities, it's little wonder the company is expecting to grow by at least 20% annually until 2027. And its goal is to hit 1 billion daily active users -- currently it's at around 112 million.

The biggest concern I have about Roblox's stock is how long it may take for the company to turn a profit. It has incurred an operating loss of $577.2 million through the first six months of the year, which is up from a loss of $540.3 million last year.

The company is growing quickly and it can take time for there to be a clear path to profitability. But by diversifying into ads, I'm optimistic its margins should improve in the future.

The stock is expensive, but it's still a great buy

Roblox has a market cap of around $100 billion and it's trading at all-time highs. But with a seemingly endless amount of content on its platform and millions of games to choose from, it's an intriguing business to invest in. Its focus on connectivity and being a low-cost option for gamers can attract more users and lead to significantly more growth in the future.

Although it's up an impressive 138% this year (as of Sept. 22), it's not too late to invest in Roblox as this is a stock that can make for a phenomenal long-term buy.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Roblox. The Motley Fool has a disclosure policy.