Is Roblox Stock a Buy in 2025?

Last year was a strong one for Roblox (NYSE: RBLX) as its stock delivered a 35% return to investors. The gaming company bounced back strongly after a brief slowdown in 2022 and 2023 and is set to reach greater heights in the coming years, riding the metaverse trend. Still, the future remains uncertain as the metaverse evolves, presenting excellent opportunities and significant risks.

Let's examine Roblox's bull and bear cases more closely to decide whether the stock is worth buying in 2025.

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Bull case for Roblox

Roblox has been firing on all cylinders lately. It first proved to the skeptics that its business model works by returning to growth mode after a brief slowdown in 2022. Doing that was important, as investors were concerned that Roblox might be a fad that got a boost from the COVID-19 pandemic.

But it didn't stop there. Roblox continued to execute well by accelerating growth over the next few quarters. For instance, booking growth accelerated from 10% in the third quarter of 2022 to 34% in Q3 2024. Similarly, revenue grew by 29% in Q3 2024, up from just 2% in Q3 2022.

Roblox's solid financial performance was the result of a few essential factors. The management team has been executing well over the years to improve operational performance, even as revenue growth slowed down temporarily. For example, daily active users (DAU) have consistently improved over the last few years, up from 37.1 million in the fourth quarter of 2020 to 88.9 million in Q3 2024.

By focusing on growing the user cohort beyond its traditional focus of under 13 and also expanding into emerging countries in Asia like India and Japan, Roblox set the foundation for sustainable growth over the long term.

Roblox's swift recovery after the slowdown post-COVID-19 reopening also suggests that the metaverse trend is intact, despite losing the same level of investors' optimism in the last few years. According to Statista, the metaverse market could reach $104 billion in 2025 and is expected to grow at 37% compound annual rate to reach $508 billion by 2030.

As an early mover in this industry, Roblox has built a vibrant ecosystem of users, content creators, and some early adopters among brands like Nike (Nikeland) and Walmart (Walmart Discovered). Suppose the gaming platform can sustain the virtuous cycle of ever-growing users, content, and brand owners and bring new use cases beyond gaming, like education and advertising, onto its platform. In that case, it can remain a major player as the metaverse industry develops in the years to come.

Bear case for Roblox

While the bulls are optimistic about Roblox's prospects, the bears point out a few essential points that investors should not ignore.

The metaverse industry is still in the very early stage of its development, so there is no certainty about whether it will ever reach its full potential. Regulatory challenges, technology changes and evolution, and the lack of a clear monetization model make it difficult for investors to make long-term predictions about companies like Roblox.

Even if the industry achieves its full potential, there is no guarantee that Roblox will remain a major player. On the one hand, the gaming company must face major competitors like Meta Platforms, which has much larger financial and human resources and a significant desire to win in the metaverse industry. Roblox might also face latecomers with better technologies and business models -- just like Google came after Yahoo and Facebook came after Friendster and MySpace.

Internally, Roblox is overly reliant on in-game purchases -- it takes a percentage of all transactions made on its platform. This dependence makes the company highly vulnerable to changes in consumer spending habits, especially in economic downturns when discretionary spending shrinks. While there is huge promise in growing advertising revenue, this business is still in its infancy and has yet to prove its scalability.

Moreover, investors wanting to participate in Roblox's long-term prospects must pay a reasonably high price for its stock. As of this writing, Roblox has a price-to-sales (P/S) ratio of 11, which is higher than Meta Platforms' P/S multiple of 9.9. It doesn't help that Roblox remains unprofitable despite its high revenue growth rate.

What it means for investors

Roblox represents a high-risk -- but potentially high-reward --investment opportunity. On the positive end, its early mover advantage could continue to strengthen as the metaverse develops, helping the company reach its long-term goal of 1 billion users.

The downside is that there remain too many uncertainties about external factors, such as how the metaverse will unfold, and internal factors, such as Roblox's ability to diversify its income sources.

For some long-term investors with a high risk tolerance, Roblox could be an intriguing bet on the metaverse's growth. But for the rest, betting on Roblox's stock could lead to sleepless nights.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Nike, Roblox, and Walmart. The Motley Fool has a disclosure policy.