Should Roblox investors worry about the company's SEC examination?

Roblox (Rblx 1.32%))) operates an extremely popular gaming platform that attracts millions of users every day. With astonishing 40 million games against Roblox, there is a lot of content to come back. It also has a lot of promise when it comes to monetizing its platform via ads.

Despite all this potential, however, it still carries a lot of risk for investors. The company is not profitable. In a recently carried out short report, it was questioned how the company dealt with the question of the safety of the children on its platform. And the Securities and Exchange Commission (SEC) examines the business. Do investors avoid the Roblox shares better?

What is the SEC examination about?

According to news reports last month, the SEC has an ongoing “active examination” for Roblox. So far, no details have been published about what this examination is published, but it may have to do with a short key report that was published last year. In October, Hindenburg Research (which was announced this year that it was closed) that the gaming company not only used up the most important key figures, but also did not do enough to protect the younger users on his platform. More than half of the Roblox users are under 16.

While Roblox denied the claims, it has introduced new security instruments just a few weeks after the report appeared. And it may have taken some time, but the short report may have brought some problems to light that caused the SEC to investigate. In the absence of an official word of the regulatory authority or the message of measures, investors can only speculate about what the examination in relation to the investigation is.

All in all, the interest of the SEC may not be the greatest cause for investors.

Will Roblox ever make a win?

What worries me the most about Roblox is his disturbing financial data. While the company has grown rapidly, its losses continue to increase. They have been in the past three years north of 900 million US dollars. Although sales rose by 29% to 3.6 billion US dollars in 2024, the company's net loss shrank by only 19% to 935 million US dollars.

RBLX Netto income data from Ycharts.

If the company scales, at least you would expect some progress towards profitability, but it is not nearly at the end result. Generating more sales and increasing the number of active users are promising developments, but it may not be sustainable.

The only hope is that it will be able to build a digital advertising platform that offers marketers unique, immersive ways to achieve users. Such an advertising company could lead to Roblox achieving better margins in the future. But when or when this will happen, someone is a guess.

Is Roblox share a good purchase right now?

The active SEC examination with Roblox is worrying. In view of the lack of developments or consequences, as a result, this should not be taken into account on the decisions of the investors whether the video game shares should now be bought or not. The much bigger problem is that the shareholders, since the company lack a clear way to profitability, take a considerable risk, since management may issue debt or are committed to dilutive secondary shares to finance its future growth initiatives.

Roblox is a fascinating stock that can be observed, but up to and unless the company shows some considerable progress in improving its end result, I would avoid buying it.