Roblox: A Buy Opportunity Ahead of Key Earnings Catalyst?

Roblox (NASDAQ: RBLX) has lagged behind the broader market this year, underperforming the S&P 500 by 20% since January 2024. Yet, its upcoming Q3 2025 earnings report on October 29, 2025, paired with a favorable Zacks Rank and improving earnings estimate dynamics, could position the stock for a rebound. Here's why investors should pay close attention—and why the risk-reward setup leans bullish.

Underperformance vs. the S&P 500: A Setup for a Turnaround

Roblox's stock has struggled this year, falling 28% since January 2024, while the S&P 500 rose 8%. This underperformance has created a discount, with the stock trading at just 1.4x trailing revenue—well below its five-year average of 2.1x. But the disconnect between valuation and fundamentals is puzzling.

Consider this: Roblox reported record revenue of $1.035 billion in Q1 2025, a 29% year-over-year jump, fueled by soaring bookings (+31% to $1.207 billion) and global user growth (97.8M daily active users, +26% YoY). The company also surpassed its own guidance for the first time in years, a positive sign of operational discipline. Yet the stock remains stuck in a rut—a classic case of “buying the dip” opportunity.

Zacks Rank #2 (Buy): A Bullish Technical Backdrop

Roblox's Zacks Rank #2 (Buy) reflects improving momentum and analyst sentiment. The consensus estimate for Q3 2025 calls for an EPS of -$0.39 and revenue of $1.02 billion, but upward revisions are already brewing. In the past three months, EPS estimates have been raised 12%—a stark contrast to the gaming industry's flat trend.

The Zacks Rank also benefits from a favorable industry backdrop. While the Gaming Software industry holds a Zacks Industry Rank #103, Roblox's regional growth (e.g., 48% revenue expansion in Japan and 77% in India) suggests it's outpacing peers. This geographic diversification could shield it from U.S. macroeconomic headwinds.

The Q3 Earnings Catalyst: Revenue Growth is the Key

The October 29 earnings report will hinge on two factors:
1. Revenue Surprises: Analysts expect $1.02 billion, but management's FY2025 guidance of $5.3–5.4 billion implies Q3 needs to hit ~$1.05 billion to stay on track. A beat here would validate its growth trajectory.
2. User and Creator Metrics: Strong DAU retention and DevEx (developer earnings) growth (+39% in Q1 to $281M) are critical to sustaining the metaverse's ecosystem.

A positive surprise could spark a rerating, especially if management raises full-year guidance. The stock's price-to-sales multiple is primed for expansion if growth accelerates further.

Risks to the Bull Case

• Estimate Downgrades: If bookings or DAUs disappoint, downward revisions could reassert bearish sentiment.
• Competitive Pressure: Fortnite, Minecraft, and emerging AI-driven platforms threaten Roblox's user base.
• Macro Uncertainties: A slowdown in discretionary spending could hit gaming budgets.

Investment Thesis: Buy the Dip Ahead of Earnings

Roblox's valuation, coupled with its strong Q1 performance and improving estimate trends, suggests the stock is pricing in too much pessimism. The Zacks Rank #2 and the October earnings catalyst create a compelling risk-reward profile.

Actionable Takeaway: Accumulate RBLX ahead of Q3 earnings. A beat on revenue or upward guidance could trigger a 20–30% rally, especially if valuation multiples expand. The downside is limited given its current discount and recent operational improvements.

In a sector where gaming stocks have underwhelmed this year, Roblox's regional dominance and creator ecosystem give it an edge. Investors who act now may catch the rebound when the earnings drumbeat turns from speculation to validation.