Roblox's (RBLX 2.06%) stock has slid to start 2026. After closing 2025 at around $81, shares of the gaming platform are now trading in the low $70s. That's a drop of a bit more than 10% in just the first handful of trading days of the new year.
Moves like that can tempt investors to buy the dip. Maybe the market is finally giving investors a chance to buy a high-growth business at a discount?
Or is the more informed takeaway here not as bullish? Maybe the stock is simply giving back a little froth after a huge run, while the valuation still assumes a lot of good news ahead?
To answer these questions, we'll need to take a look at several things: how the business is doing, whether its recent strength is sustainable, and what the stock price already assumes.
Image source: Getty Images.
Platform growth is surging
Roblox's business model is compelling. It operates a digital platform where people play games and social experiences that are largely created by other users and developers. Those creators earn money when players spend inside those experiences, and Roblox keeps a portion of that spending.
The model is working extremely well -- especially recently. In Q3, Robolox's daily active users rose to 151.5 million, up 70% year over year, while hours engaged climbed an incredible 95% to 39.6 billion.
The net effect on Roblox's top line? Its revenue rose 48% to $1.36 billion.
One of the most important numbers for Roblox is bookings, as it highlights both monetary and engagement trends of users on its platform. Think of bookings as the value of what players bought during the period. These bookings, management explains, are primarily generated from sales of virtual currency, which is used to buy virtual items on the platform. In Q3 2025, bookings rose 70% to $1.92 billion.
Putting all of these figures in the context of recent quarters' performance shows the accelerating nature of Roblox's business. In Q2, Roblox's daily active users, hours engaged, revenue, and bookings grew at year-over-year rates of 41%, 58%, 21%, and 51%, respectively. All four of these figures are strong -- but significantly below third-quarter growth rates.
And Roblox's third-quarter cash results were even more striking. The company's operating cash flow was $546 million, up 121% year over year, and free cash flow (operating cash flow less capital expenditures) was $443 million, up 103%.
Management credited its recent acceleration in key business trends to broad strength and new "viral" hit experiences.
All of this helps explain why Roblox's stock had such a good 2025, with shares rising about 40%. The business was firing on all cylinders, driving growth in users, engagement, spending, and cash flow.
Still priced for perfection
The harder question is whether the stock is now reasonably priced after this early 2026 pullback? Notably, this pullback adds to a downtrend that started in late 2025. So, despite the stock being up 40% last year, shares are down about 42% over the last three months, making the buy-the-dip temptation particularly strong.
But before investors dive in and buy the dip just because the stock is down, and because there's a lot that looks great about the underlying business, it's worth highlighting that Roblox still isn't profitable on a generally accepted accounting principles (GAAP) basis. The company's net loss in its third quarter was about $257 million -- worse than its $240 million loss in the third quarter of 2024. Additionally, the company guided for a loss between $345 million and $375 million in the fourth quarter of 2025. This would bring the company's full-year net loss to about $1.1 billion.
So, yes: Roblox generates a ton of free cash flow. For the full year of 2025, management expects free cash flow to be somewhere between about $1.1 billion and $1.13 billion. However, this strong free cash flow is a byproduct of the company's decision to rely heavily on non-cash-based compensation. Specifically, during the trailing nine-month period ended Sept. 30, Roblox's stock-based compensation was approximately $831 million. This, combined with the company's heavy spending on platform safety, research, and development, helps explain why losses are so substantial.
This mix -- rapid growth, but large reported losses -- is a reminder that Roblox is still in a heavy investment phase. And the company has been clear that it intends to keep investing. In its shareholder letter, it said it is willing to prioritize safety and long-term growth "above near term results," even if that requires more near-term spending. Translation: The company will sacrifice profitability in exchange for greater platform growth and improved platform safety.
NYSE: RBLX
Key Data Points
The context of losses and plans for significant spending matters when assessing the stock's valuation. With a $51 billion market capitalization as of this writing, investors are paying about 12 times the company's sales. A valuation like this prices in not only more strong top-line growth for years to come but an eventual swing to GAAP profitability in a substantial way. Additionally, it leaves little room for execution missteps, slowdowns, or higher-than-expected costs.
Even more, Roblox itself flagged reasons 2026 might not look as easy as 2025. It noted that viral hits can be difficult to predict, that tough comparisons could impact reported growth, and that new safety features could affect engagement in the short term. It also suggested its operating margin could decline slightly year over year in 2026 as investments catch up with the surge in demand.
Taken together, the business looks strong, and the long-term opportunity may be substantial. After all, management maintains its ambitious goal of eventually capturing 10% of the global gaming market. But the stock's valuation means there's little room for error. So I'll personally be staying on the sidelines, even at this price.
