Roblox Corporation (RBLX), the operator of one of the world’s leading immersive gaming platforms, received a wave of Wall Street upgrades earlier this month following its strong Q2 earnings beat. While sentiment is broadly bullish, I believe Roblox’s premium valuation calls for caution, as the stock trades at a steep price relative to other gaming peers.
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The company’s expanding free cash flow and impressive growth trajectory are undeniable, but current valuations already assume years of near-perfect execution. For that reason, I remain Neutral on Roblox stock.
Wall Street is Cheering for the Right Reasons
Even at a lofty P/S multiple of 21x, Roblox has plenty of strengths worth noting. Following a standout Q2, Wall Street firms, including Bank of America (BAC), Oppenheimer (OPY), Needham, and Wedbush, raised their price targets. Bookings—the company’s most important sales metric—rose 51% YoY to $1.44 billion, while daily active users climbed 41% to 111.8 million. Engagement also hit new highs, with hours spent on the platform surging 58% to 27.4 billion, underscoring Roblox’s strong user retention. Reflecting this momentum, BofA boosted its price target by $26 to $159, citing expectations for continued growth in the coming quarters.
Roblox’s success isn’t limited to headline growth figures. The platform’s expansion into new markets also impressed analysts. DAUs aged 13 and older increased 54% YoY, showing that Roblox is gaining traction with an older audience—an encouraging sign for long-term monetization potential. International momentum was strong as well, with bookings outside the U.S. and Canada up 53% YoY, bolstering the company’s ambitious global strategy. After highlighting this broadening user base, Needham raised its price target by $80 to $159 and noted that Roblox’s goal of capturing a 10% share of the mobile gaming market looks increasingly attainable.
Further strengthening its investment case, Roblox reported a 58% YoY jump in free cash flow to $176.7 million, demonstrating meaningful improvement in its cash-flow profile.
Roblox Faces a Profitability Problem
Despite impressive growth in engagement, revenue, and free cash flow, I maintain a neutral stance on Roblox due to its persistent profitability challenges—issues that I believe are not fully reflected in the company’s premium valuation. In Q2, Roblox posted a net loss of $279.8 million, pushing its accumulated deficit to nearly $4.5 billion. A deeper look shows that heavy R&D spending and substantial creator payouts are the primary drivers of these steep GAAP losses.
To stay ahead of competitors, Roblox must continue investing aggressively in product engineering and design. R&D expenses reached $385 million in Q2, and management has signaled that such investments will remain elevated as the platform expands. This reality pushes GAAP profitability further out of reach, raising the risks of owning Roblox at its stretched valuation—currently trading at a forward EV/EBITDA multiple of 66x.
Meanwhile, the costs of keeping creators engaged remain significant. In Q2, creator payouts rose 52% YoY, outpacing bookings growth and highlighting the structural weight of these expenses on profit margins. While such payouts are essential to Roblox’s business model, they further limit the path to profitability in the near term.
Is Roblox a Buy, Sell, or Hold?
On Wall Street, RBLX stock carries a Strong Buy consensus rating based on 16 Buy, three Hold, and one Sell ratings over the past three months. RBLX’s average stock price target of $145.20 implies approximately 22% upside potential over the next twelve months.
Beyond the price target hikes already mentioned, Roblox received additional upward revisions following its Q2 earnings. Oppenheimer raised its target by $25 to $158, citing confidence in Roblox’s ability to improve user monetization over time. Wedbush lifted its target by $23 to $165, pointing to the strength of Roblox’s diverse portfolio, with more than half of Q2’s growth in experience spend coming from titles outside the top 10.
Even after significant price target hikes by several analysts covering Roblox, the potential upside seems limited as Roblox stock has more than doubled this year, stretching its valuation multiples. Because of this, I believe there is little margin of error for investors today.
Roblox’s Momentum Meets a Lofty Valuation
Roblox’s Q2 results show the company firing on all cylinders. Yet, the stock already reflects much of this success—and, more concerningly, appears to be pricing in several years of future growth. While Roblox is expanding internationally and gaining traction with older, higher-value users, its stretched valuation skews the risk-reward profile to the downside. For now, I remain neutral on the stock and believe investors are better served waiting for a more attractive entry point.