Roblox becomes kid friendly…for a price

It turns out you can make Blox Fruits childproof, but it’ll cost you.

Roblox learned that the hard way after shares plunged 18.29% today to their lowest level in 18 months after the gaming platform reported Q1 results after the bell on Thursday:

• Daily active users increased 35% over the quarter, far below the 44% increase analysts were expecting.
• At the same time, the company slashed its bookings guidance (aka, the measure of digital products sold on its platform), warning that it will only see an increase of 8% to 12% this year, down from expectations of a 22% to 26% bump.
• Management warned of “continued short-term friction” from new safety policies.

That last point is the important one. For years, Roblox has faced multiple lawsuits and investigations alleging that the platform has exposed children to predators and disturbing content. Just last month, the company agreed to pay $23 million to settle child safety cases in Alabama and West Virginia.

Part of what makes this challenging is that Roblox, on top of being a gaming site, is also a social platform where people can chat and meet. And because its user base is so young compared to other gaming platforms, it faces more pressure to mitigate the forces of, well, the entire internet.

Back in 2024, shares of Roblox fell after Hindenburg Research unveiled a short position in Roblox, arguing that the company inflated user data, calling the platform a “pedophile hellscape”—a claim Roblox denied vehemently.

Can Roblox reach the next level?

All of this pressure explains why Roblox implemented a strict age-verification policy in January, requiring users to confirm their age via facial recognition technology. The company has also tightened content moderation, disabled the chat function for younger users, and placed explicit limits on adult-child communication. These are all good safety measures, but the problem is that they’re also tanking user engagement on the platform.

“We were surprised, as was management, which did not anticipate the second order effects of rolling out age verification; namely, loss of access to communications reduced engagement within and outside of Roblox, including app store likes, Youtube views, etc,” wrote Bank of America analyst Omar Dessouky in a note today, downgrading the stock to Neutral.

But some analysts were far more optimistic: TD Cowen upgraded the stock from Sell to Hold today, even as it lowered its price target on the stock, arguing that the lowered expectations were more realistic.

Stricter age-verification policies are expected to become more popular as social media behemoths face increasing litigation about user safety. If that happens, the headwinds to engagement will be less of a Roblox-specific problem.

We don’t age-verify here at Brew Markets, because if you’re reading a newsletter about the stock market, you’re probably not playing games like Steal a Brainrot.—LB