A difficult year for Roblox (RBLX +14.57%) stock got worse last week after the virtual gaming platform slashed its full-year guidance, sending its share price tumbling 18% in the next session. The stock is now down more than 44% year to date.
At the heart of the company's issue is its new age-check feature, introduced in January, which affects the user experience for non-age-verified users and is hurting new user acquisitions. Nearly three-quarters of Roblox users are minors, with about 35% under the age of 13. The changes were necessary, as the company faces multiple lawsuits against it alleging that it failed to protect children from sexual exploitation.
Image source: Getty Images.
Roblox management slashed guidance
As a result, the company took a hatchet to its bookings guidance, narrowing it to a range of $7.33 billion to $7.6 billion, down from a prior range of $8.28 billion to $8.55 billion. Because of how Roblox recognizes revenue, bookings are its most important metric, as they are a better indicator of how much users are spending on its platform. A lot of its revenue is recognized ratably, which makes it more reflective of past than current platform usage.
For the first quarter, Roblox's bookings jumped 43% year over year to $1.7 billion. However, with its new guidance, bookings are only expected to grow by 8% to 12% this year. Daily active users (DAUs), meanwhile, climbed 35% to 132 million, while monthly unique payers (MUPs) jumped 52% to 30.7 million. Much of the growth once again came from international markets, with DAUs up 40%. U.S. and Canadian DAUs grew 17%, and MUPs were up 19%.
Overall revenue increased by 39% year over year to $1.44 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, surged 71% to $99 million. However, Roblox continues to aggressively use stock-based compensation, which is removed from adjusted EBITDA. In the quarter, the company recorded $275 million in stock-based compensation expenses. This has recently become a much more closely scrutinized metric.
NYSE: RBLX
Key Data Points
Looking ahead, the company is forecasting 2026 revenue to increase by between 20% and 25% to $5.865 billion to $6.135 billion, down from prior guidance of between 23% and 29% to a range of $6.02 billion to $6.29 billion. It's now looking for adjusted EBITDA of between $185 million to $325 million, up from a prior outlook of $30 million and $198 million.
Is the stock a buy, or should investors stay away?
The new age-verification safety measures were a necessary step for Roblox, but they are likely to hinder its growth moving forward. I view this as more of a long-term headwind than just a one-time reset. Meanwhile, given its heavy use of stock-based compensation, I generally find the profitability metrics it reports to be low-quality. As such, even with this sell-off, I'd stay away from the stock.
