Roblox (NYSE:RBLX) just took a beating, sinking nearly 14% as of 1.02pm today, after dropping its Q4 2024 earnings. At first glance, the numbers looked solidrevenue surged 32% to $988 million, and bookings climbed 21% to $1.36 billion. But here's where investors hit the brakes: daily active users (DAUs) grew 19% to 85.3 million, but that wasn't enough to match expectations, and spending per user barely budged. On top of that, management's 2025 forecast pointed to slower revenue growth and a deeper net loss, making investors nervous about what's ahead.

• Warning! GuruFocus has detected 6 Warning Signs with RBLX.

A major red flag? The glaring gap between free cash flow and net income. Roblox expects over $800 million in free cash flow in 2025 but is staring down a net loss of more than $1 billion. The culprit? Stock-based compensation, a non-cash expense that still dilutes shareholders over time. Even with a 54% jump in Q4 free cash flow and a staggering 417% annual increase, investors aren't convinced. The worry is simple: Can Roblox sustain this financial balancing act, or is dilution going to keep eating into returns?

Despite the rough market reaction, Roblox is playing the long game. CEO David Baszucki remains bullish, betting on AI-driven discovery, platform enhancements, and a growing virtual economy to push the company forward. Roblox wants a bigger slice of the global gaming content market, but execution is everything. If user spending stays flat while competition in the metaverse heats up, Roblox has work to do. Investors will be watching closely to see if engagement translates into stronger monetizationor if the stock keeps taking hits.