Are Roblox and Grab Worth Buying After the Drop?

TL;DR

Roblox appears financially stronger than its negative net income suggests because cash from operations reached $1.3 billion and its free cash flow margin improved to 26.15%. Its rapid growth among users over age 13 challenges the idea that it is mainly a children’s platform, although regional monetization differences and continued GAAP losses remain important risks.

Transcript

Hey everyone and welcome back to another video for today. So in today's video we have quite a lot to talk about. We have Core raising another $2 billion or so. Stock is down at the time of making this video. I do want to touch on two companies, two stocks that in my opinion are still flying under the radar. One is actually way more impressive than ... Read More

Key Insights

• Roblox is generating substantial cash despite remaining unprofitable under GAAP. Cash from operating activities reached $1.3 billion over the last 12 months, while its free cash flow margin improved to 26.15%, compared with a negative 25% operating margin and negative 21% net profit margin.
• Roblox’s stock decline does not erase its strong yearly performance. The company was valued at approximately $67 billion and had fallen about 32% from its recent level, but its shares were still up 63.3% year to date at the time discussed.
• Roblox’s older audience is growing faster than its younger audience. Hours engaged by users over 13 increased 107% year over year, compared with 67% growth among users under 13, weakening the argument that the platform depends primarily on children.
• Roblox’s global expansion is producing sharply different regional booking growth. Bookings increased 50% in the United States and Canada, 90% in Europe, 110% in Asia-Pacific, and 129% in the rest of the world during the latest quarter discussed.
• Roblox’s engagement growth is supporting its long-term revenue opportunity. Average total monthly unique players increased by around 90% year over year, hours engaged rose 91.3% to 39.6 billion, and total daily active users grew nearly 72%.
• Netflix’s signed Warner Bros. agreement values the targeted studios and streaming assets at $27.75 per share. The consideration consists of $23.25 in cash and $4.50 in Netflix stock, representing $72 billion in equity value and $82.7 billion in enterprise value.
• Paramount’s hostile tender offer gives Warner Bros. shareholders a higher headline price for a broader collection of assets. The proposal offers $30 per share entirely in cash for the whole company and was scheduled to expire on January 8, 2026.
• CoreWeave’s proposed financing could provide additional capital for growth while creating dilution concerns. The company announced a $2 billion convertible senior-notes offering that could increase to $2.3 billion, with proceeds intended partly for capped calls, data centers, and additional GPUs.

Questions & Answers

Q: Why might Roblox be financially stronger than its net loss suggests?

Roblox remained unprofitable based on GAAP net income, with a negative 21% net profit margin and a negative 25% operating margin. However, cash from operating activities reached $1.3 billion over the last 12 months, and the free cash flow margin improved to 26.15%. This contrast suggests that its cash generation was considerably stronger than its reported accounting earnings indicated.

Q: Is Roblox still mainly a platform for children under 13?

Roblox still has a meaningful audience under 13, but the reported growth rates show that older users are becoming increasingly important. Hours engaged among users over 13 increased 107% year over year, versus 67% for users under 13. Daily active users over 13 also increased 89%, compared with 44% growth among the younger group.

Q: How fast were Roblox users and engagement growing?

Roblox reported rapid expansion across several user and engagement measures. Total daily active users increased close to 72% year over year, average total monthly unique players rose by around 90%, and hours engaged increased 91.3% to 39.6 billion. These figures indicate that the platform was attracting more users while also generating substantially more total activity.

Q: How did Roblox bookings grow across different regions?

Roblox’s bookings increased across every region discussed, although the fastest percentage growth occurred outside its most established markets. Bookings rose 50% in the United States and Canada, 90% in Europe, 110% in Asia-Pacific, and 129% in the rest of the world. The analysis notes that monetization is generally easier and higher in some regions than others.

Q: What are the main financial risks in the Roblox investment case?

Roblox’s principal financial concern is that it still reports negative GAAP earnings and margins despite strong cash generation. Its operating margin was negative 25%, and its net profit margin was negative 21%. Average revenue bookings per daily active user were also roughly flat year over year in the latest quarter, while faster growth came from regions with lower monetization.

Q: How do the Netflix and Paramount Warner Bros. offers differ?

Netflix’s signed agreement offers $27.75 per share for Warner Bros.’ studios, streaming business, and associated intellectual property. It includes $23.25 in cash and $4.50 in Netflix stock. Paramount instead launched a hostile tender offer of $30 per share, entirely in cash, for the whole company, including the global networks business excluded from Netflix’s proposed acquisition.

Q: What termination fees apply to the Netflix Warner Bros. agreement?

Netflix would pay Warner Bros. $5.8 billion if the transaction failed because of a regulatory issue attributed to Netflix. Warner Bros. would pay Netflix $2.8 billion if Warner Bros. caused the signed transaction not to proceed, including by accepting Paramount’s competing proposal. These fees are important when comparing the practical value and execution risks of the offers.

Q: Why did CoreWeave propose raising up to $2.3 billion?

CoreWeave proposed a $2 billion convertible senior-notes offering that could increase to $2.3 billion. Part of the proceeds was intended for capped-call transactions designed to help limit potential dilution. The remaining capital was expected to accelerate the business by supporting additional data-center construction and GPU purchases, although the announcement contributed to a roughly 5% to 6% stock decline.

Summary & Key Takeaways

• Roblox is presented as a $67 billion company whose shares have fallen about 32% while remaining up 63.3% year to date. The investment case rests on improving free cash flow, rising cash from operations, declining stock-based compensation relative to revenue, and projected revenue growth of almost 35% annually from 2024 through 2027.

• Roblox’s user data challenges the argument that children will abandon the platform as they grow older. Hours engaged among users over 13 increased 107% year over year, while daily active users in that group rose 89%. Total daily active users increased nearly 72%, supporting the view that Roblox is expanding beyond younger players.

• The broader discussion covers competing proposals for Warner Bros. assets and CoreWeave’s proposed convertible-note offering. Netflix agreed to pay $27.75 per share for studios and streaming, while Paramount offered shareholders $30 in cash for the entire company. CoreWeave proposed raising $2 billion, potentially increasing to $2.3 billion, to support expansion.