By Adam Levine
There is an old Wall Street adage: "Being early is the same as being wrong."
Back in November, when I recommended Roblox as a buy, I was early and very wrong. Still my opinion on the stock hasn't changed. The selloff since then, including Friday's 18% tumble in the wake of lowered 2026 guidance, makes for an attractive entry point once the dust settles.
Roblox is a company that has always taken a long-term outlook, building a platform of millions of social environments for gaming, entertainment or just hanging out. The Roblox generation is aging up, and the company is having success keeping older users coming back to the platform. Down the road, it has a chance to become one of the primary social media destinations in the world.
But having a long-term outlook also means a willingness to take short term hits, and in 2026, Roblox is doing that. It is using the momentum and cash from its blowout 2025 to reinvest in the platform. This year it is adding a slew of new features for developers and players, and it is building out its cloud, the backbone of the platform.
The biggest near-term hit relates to safety. Because of its young demographic, Roblox has been singled out among social networks for child safety issues, and there are several lawsuits pending from U.S. states and individuals. In January the company began requiring age estimation in order to use any of the communication features, with users grouped by age. The rollout has been fraught, to say the least.
The first thing I got wrong in November was the idea that markets had already been prepared for the reduction in user metric growth and the costs of accelerated investments. With the stock well off its record levels, I misread that.
I also badly underestimated the impact that age-estimation would have on social interaction on Roblox, and that it would drag on through the year. This is the first use of age-gating at scale for any social platform, and the second and third-order effects are still hard to gauge, even for Roblox.
At the end of March, only 51% of worldwide daily users had undergone the process, meaning almost half of the user base was unable to use Roblox as a social platform. That brings financial consequences for Roblox: Players who use chat spend as much as seven times more on the platform than those who don't chat, according to data from Roblox gaming analytics company Gamebeast.
According to Gamebeast, chat metrics cratered in January after the shift, and while they have recovered some, there's still a long way back to where the platform needs to be to thrive.
In retrospect, I should have waited six months to write bullishly on Roblox, but I still look at the company in the same way. CEO Dave Baszuki has always had a clear idea of what he wants to build: a platform where a billion people gather every day to hang out and have fun in one of the millions of virtual worlds on the platform. Making it a safe place is a crucial ingredient in that mission.
Today, I see a setup similar to 2022, when Roblox fell 72%, as the company reinvested in the business. The stock finished that year at $28.46, which turned out to be a great buying opportunity.
Shares closed Friday at $45.13; they're down 44% this year.
Roblox's latest selloff may not yet be done. The company's revised guidance was legitimately terrible, indicating that the slowness of the rollout surprised them as well, and will drag on. The outlook also implies a tough second half of the year, when the company has comparisons to year-ago quarters with big viral hits.
Viral hits can't happen if a large portion of the players aren't communicating with each other. The third quarter, when Roblox's users are on summer vacation, is when these things can really take off, and the company doesn't seem to believe that the chat issues will be solved by then. This sets up the possibility of an upside surprise should something go viral, but that would be the nearest term bullish catalyst.
Eventually, once the dust settles, this will be another great entry point, just like 2022.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 04, 2026 03:00 ET (07:00 GMT)
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