After years of struggle, actions of Roblox (RBLX 2.77%) they seem to be on the road to recovery. The stock is up nearly 90% from its May low as sequential revenue growth is picking up again.
The question for Roblox is whether that increase can continue through 2025. Will its improving numbers translate into profits and further growth in the stock price, or is this just a slight improvement as it struggles to exit from a bear market continues?
Roblox status
The company provides an online gaming platform. What sets it apart from the competition is Roblox Studio, a free game creation platform that favors the development of 3D games and virtual worlds.
This description probably inspires thoughts about the metaverse, and indeed, the stock took a hit in the bear market of 2022, in part because the metaverse became a fad that passed relatively quickly.
Fortunately for Roblox investors, its gaming platform has maintained and increased its popularity, especially as the company has pivoted into artificial intelligence (AI). Such tools have improved the productivity of their creators and dramatically reduced the amount of technical skills needed to create games.
Roblox also has a strong following among children, with about 39% of its daily active users (DAU) 13 and younger. Although the over-13 cohort is now a larger and faster-growing group, the younger group remains an important part of its base.
The platform’s DAUs grew to 89 million in the third quarter of 2024, an annual increase of 27%. In addition, since the hours spent on the platform grew by 29% in the same time, the average user now spends more time on Roblox.
Roblox financials
It is not surprising, that the growing popularity has stimulated the first line. In the first nine months of 2024, revenues were $2.6 billion, 28% higher than in the same period in 2023. That represented the growth improvement since, in the first three quarters of 2023, revenues grew by 24% annually.
Unfortunately for shareholders, costs exceeded $3.4 billion for the first three quarters of the year, mostly due to $758 million in stock-based compensation. So even when including other sources of revenue, the company still lost $716 million in the first nine months of the year, only a slight improvement from the $828 million loss in the year-ago period.
Perhaps the most notable improvement in financials came from its free cash flow (FCF). The company reported $521 million in FCF during the first three quarters of 2024, well above the $46 million in the same period in 2023. Since stock-based compensation is a noncash expense, the improved FCF shows Roblox to be in better financial shape than his. net losses involve.
The company’s guidance for 2024 calls for annual revenue growth of 28%. So, at least in the immediate future, investors should expect more of the same.
However, with the increase in the share price, it has become more expensive on a relative basis, with a price to sales ratio (P / S) of 11. That is not compared to the bull market 2021 when multiple sales sometimes. exceeded 30, although it is higher than last spring when the P / S was around 7, which implies that it is not as much of a deal as it was recently.
Will Roblox Grow in 2025?
Although something may happen this year, investors should probably temper their expectations with the stock and treat it as a catch.
Roblox’s DAUs continue to grow rapidly, and its strengthening free cash flow may reassure investors worried about its losses.
However, the losses can also hurt the company’s finances, and the high stock-based compensation could also dissuade many investors. So his prospects for next year are uncertain.
The shares of Roblox should be a major player in the gaming sphere, and the shareholders should feel safe to maintain their current positions. However, with the near-term direction of the stock in doubt, investors should probably consider putting new money to work elsewhere.