Why Are Investors Talking About Roblox Stock?

Shares of Roblox (NYSE: RBLX) -- the gaming platform popular with teenagers -- have been on fire recently, almost doubling their price in the last 12 months. Investors have been drawn to the company's continuing recovery from the bottom it reached in 2022 and its robust prospects.

Let's delve into these aspects to understand why smart investors have been paying increasing attention to the stock in recent months.

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Investors are gaining more confidence in Roblox's business model

Roblox is a unique business because it combines gaming, social networking, user-generated content, and a digital economy into a single, scalable platform -- something no other company has executed at this scale or depth.

Being unique, however, has a downside, which is the uncertainty surrounding its future. For instance, it's not easy to make a direct comparison to a standard valuation metric, making Roblox's stock valuation challenging. So, while this may not be a problem during good times, it is a massive disadvantage during challenging periods.

That's what happened when bookings fell to a negative 4% in the second quarter of 2022, leaving investors confused and depressed. While bookings resumed their upward trajectory in the following quarters, some investors also find it difficult to understand why Roblox couldn't deliver a net profit, even though it was already generating $3.6 billion in revenue in 2024.

Fortunately, Roblox's ongoing execution in growing its user base, engagement, and revenue has pleased investors. In 2024, daily active users (DAUs) grew 21%, hours engaged increased by 23%, and revenue jumped 29%. Better still, the growth momentum continued into the first quarter of 2025 as DAUs improved 26% to 98 million and revenue surged 29% to $1 billion.

So, while there are still lingering issues -- for example, Roblox remained in the red in the first quarter of 2025 -- investors are getting more comfortable with the company's business model and its strategies. Moreover, investors find comfort in knowing that the gaming company has been generating solid free cash flow, even though it has yet to become profitable. For perspective, free cash flow was $427 million in the first quarter of 2025.

With a better understanding from investors, Roblox is better positioned to invest heavily in the coming years to achieve its full potential.

It has multiple ways to win

Roblox has a long-term vision of achieving 1 billion users, more than 10 times its existing DAU of 98 million. While it's unclear whether it can achieve that ultimate goal, it has consistently grown its user base over the last few quarters for good reasons.

The key driver of its user growth is the flywheel resulting from the interplay between the growth in developers, quality content, and user engagement. For illustration, game developers are attracted to Roblox due to its vast user base of nearly 100 million, giving them a huge opportunity to make good money. For perspective, more than 100 developers earn more than $1 million, which will grow over time.

As more developers join, competition will naturally increase among them to bring the best-quality content to the platform. As the quality and quantity of content improve over time, user engagement will grow, further enhancing overall spending on the platform. In other words, there is a natural tailwind for the platform to scale over time so long as Roblox can maintain the safety and integrity of the user experience.

Another critical driver of Roblox's future growth is the diversification of its monetization avenues. Presently, the tech company makes money predominantly from in-game purchases, wherein it takes a cut from the transactions on the platform. However, as its user base grows, it is well-positioned to grow other income sources such as advertising, e-commerce, etc. For example, it recently partnered with Google to grow its immersive advertising business, which could be the next growth frontier for the company.

Let's not forget the potential for the company to go beyond its gaming roots to cover a bigger part of the virtual experience, better known as the metaverse. According to Statista, the metaverse market could be worth $508 billion by 2030. While it's still early days, Roblox's early-mover advantage gives it a huge advantage in becoming a meaningful player as the industry develops over time.

What it means for investors

Roblox has the potential to become a dominant force in immersive digital experiences, but success hinges on its long-term execution. If it can grow its audiences, diversify revenue, and maintain trust while investing in infrastructure to support a thriving creator economy, it could be a leading candidate to win in the long run.

It's still early, but savvy investors are already paying close attention.

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Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool has a disclosure policy.