Roblox: The World’s Biggest Game Struggles to Turn a Profit—Why, and What Can Be Done

Roblox has grown into a behemoth in the gaming world, with a scale that far exceeds the perception many have of the platform. Even as the gaming industry saw its largest contraction in decades following the COVID-19 pandemic, Roblox continued to expand its user base and engagement levels. On an average day, more than 80 million people log into Roblox, which is more than the peak monthly user base of Second Life, a well-known virtual world from the early 2000s. On a monthly basis, Roblox boasts over 380 million users, a number that dwarfs the user counts of other major platforms like Steam, PlayStation, and Xbox. In fact, when considering duplication across these gaming platforms, it’s possible that Roblox has more monthly users than the entire AAA gaming ecosystem combined. This popularity extends across multiple platforms, with Roblox frequently ranking among the most played games on PlayStation and Xbox. It’s also the most popular game on mobile platforms, according to SensorTower data from 2023.

Compared to its closest competitors—Minecraft and Fortnite—Roblox’s user base is significantly larger, with about five times the players of Minecraft and more than twice the players of Fortnite. For context outside of the gaming industry, Roblox’s monthly user base is roughly equivalent to two-thirds of Spotify’s and half of Snapchat’s, and it’s as popular today as Instagram was in late 2015 and Facebook in 2009. Players are not just logging in; they’re deeply engaged. Collectively, they spend nearly six billion hours each month on Roblox, a figure that far surpasses the monthly watch time on Disney+.

Roblox’s growth has been remarkably steady, with little sign of slowing down. Even at its enormous scale, the platform continues to add users and increase engagement. Notably, the proportion of users who log in daily has increased, as has the time spent per user. The platform’s user demographics have also evolved; while the share of players from the U.S. and Canada has grown, the majority of new users come from regions like Asia-Pacific and the rest of the world, which have seen explosive growth. Despite this diversification, the platform’s global presence is strong, with player distribution closely mirroring playtime distribution worldwide.

Financially, Roblox’s revenue streams have also grown, even as its user base has expanded into lower-income regions. Revenue per user has increased compared to pre-pandemic levels, and even though spending has decreased slightly from the pandemic peak, the overall trend is upward. Roblox’s annual revenue is now over $3.8 billion, a quarter of which goes to developers on the platform. The sheer volume of user-generated content is staggering, with thousands of new virtual items and worlds being created daily.

However, despite all this success, Roblox is deeply unprofitable. The platform’s costs have outpaced its revenue growth, leading to significant losses. Over the last four quarters, Roblox reported operating losses of $1.2 billion on $3.2 billion in revenue, translating to a -38% profit margin. This marks a substantial increase in losses compared to the pre-pandemic period, despite revenues having grown more than sixfold. The platform’s cost structure is a significant factor in these losses. Nearly half of its revenue is consumed by unavoidable expenses like App Store fees and payments to developers, leaving little room for other costs.

Infrastructure and trust & safety are other major cost drivers, consuming a large portion of revenue. These costs are somewhat fixed, meaning that while they could decrease as a percentage of revenue, reducing them without compromising the platform’s operation or user safety is challenging. Additionally, as Roblox aims to attract older users and increase spending, it invests in more expensive-to-operate experiences, such as those powered by generative AI. This AI investment extends to real-time communication, asset creation, and moderation efforts to combat issues like harassment and predation on the platform, which have recently drawn scrutiny.

General & Administrative and Sales & Marketing costs have shown some declines, but even significant cuts here would not be enough to bridge the gap to profitability. Research and development (R&D) is the most substantial cost category, accounting for 44% of revenue. As a platform, R&D is crucial for Roblox’s continued growth, as it drives improvements that attract more users and developers. However, this level of R&D investment is unsustainable in the long term, especially when compared to industry norms.

Despite its losses, Roblox does generate positive operating cash flow, thanks in part to its revenue recognition practices and reliance on stock-based compensation for employees. These practices provide a temporary shield against cash expenses, but they are not a sustainable long-term strategy. As the company matures, it will likely need to shift more compensation from stock to cash, further increasing costs.

To become profitable, Roblox will need to make strategic adjustments. This could involve reducing R&D expenses as a percentage of revenue, finding ways to cut other costs, and continuing to grow revenue, particularly by increasing average revenue per user in regions outside the U.S. and Canada. Enhancing monetization through new features or better virtual goods offerings could also help improve the financial picture.

In summary, while Roblox is incredibly popular and continues to grow, its path to profitability will require careful management of costs and continued innovation in monetization strategies.