Key Takeaways
- Roblox is implementing an AI-powered system to estimate user ages by the end of the year, aiming to bolster platform safety.
- This initiative addresses concerns about minor safety but might introduce user friction, as cautioned by the company and analysts.
- Roblox reported strong Q3 growth in revenue and users, alongside a net loss and anticipated increased spending.
- Analysts express cautious optimism, recognizing Roblox’s momentum while monitoring the potential impact of new safety features on engagement.
- Legal and regulatory pressures are significant drivers behind Roblox’s enhanced safety measures.
Roblox has unveiled a significant new safety initiative, which will leverage artificial intelligence to estimate the age of every user on its platform. CEO David Baszucki announced that the company aims to complete the rollout by the end of this year, stating, We’re going to use AI to estimate the age of every single person on Roblox. We expect to have this done all by the end of this year.
This strategic move is primarily designed to address ongoing concerns regarding the safety of minors and their interactions within the platform. However, the announcement was met with a less than favorable reaction from investors.
Roblox’s stock saw a decline on Friday following the company’s disclosure of this safety push, alongside commentary concerning planned increased spending projections for 2026. Despite this dip, the company’s shares have exhibited substantial growth, increasing by over 93% year-to-date.
In its third quarter, Roblox reported a revenue of $1.36 billion, indicating a 48% year-over-year increase and surpassing analyst estimates of $1.09 billion. Despite this positive revenue performance, the company recorded a net loss of $257.4 million, an increase from the $240.4 million loss reported in the same period last year.
Bookings demonstrated robust year-over-year growth of 70%, with daily active users also experiencing a similar 70% increase. Notwithstanding this upward growth trajectory, management cautioned shareholders that higher capital expenditures are anticipated, and the new facial age estimation system might introduce what they termed engagement friction.
Wall Street Cautions on Engagement Metrics
The market’s reaction indicated concern over these potential challenges. JPMorgan analyst Cory Carpenter, who maintains an ‘Overweight’ rating on Roblox, noted that the new facial estimation feature could potentially reduce player usage as users adapt to the new verification process.
Carpenter elaborated in a note to investors, “Facial estimation is the primary safety initiative that could impact engagement next year. Management thinks it’s prudent to expect some initial friction, but it’s hard to quantify at this point.”
Roblox’s core business model relies heavily on users spending extended periods within its virtual environments. Consequently, any slowdown in user engagement presents a critical factor that investors will be monitoring closely.
Baszucki characterized the AI system as an integral component of Roblox’s comprehensive safety framework. He articulated the company’s ambition to establish what he referred to as a gold standard for communication safety on the internet, highlighting existing measures such as stringent chat filters and prohibitions on image or video sharing within chat functions.
He further stated that the AI age system has already undergone rigorous internal testing. It’s really quite elegant, Baszucki commented. I’m very optimistic that any friction that we might see from this is actually beneficial to us in the long run.
💡 The company is also contending with legal challenges. A lawsuit filed in Florida alleges that Roblox failed to adequately prevent minors from exposure to harmful content, allegations which the company firmly denies.
Regulators and lawmakers globally are also intensifying pressure on all major online platforms to enhance their age verification and safety tools. Other platforms are similarly implementing new measures; for instance, Instagram currently applies PG-13 restrictions to users under the age of 18.
Potential for User Pushback on Verification
With approximately one-third of Roblox’s 150 million daily active users being under the age of 13, safety advancements are both urgent and intricate. The facial estimation process is designed to take approximately 30 seconds, requiring players to enable their cameras and rotate their heads.
This functionality might present greater challenges on console and mobile devices. Carpenter highlighted that Roblox users typically spend an average of 2.5 hours daily on the platform, and any feature that disrupts this established routine could potentially weaken overall user engagement.
📊 Currently, Roblox operates over 400 AI systems across its platform, which are utilized for diverse functions including generating new game content, moderating conversations, and translating languages. The company is also actively developing new data centers to support its extensive AI operations.
⚡ Baszucki indicated that new 4D generative tools are in development, intended to allow users to create objects through voice commands alone. Despite potential short-term challenges, Carpenter maintains a positive outlook on the company’s long-term business prospects.
He forecasts bookings to increase by 20% in the upcoming year and anticipates that profit margins will begin to improve again by 2027. However, Carpenter did revise his 2026 price target downwards, from $160 to $145, while stating, There’s no debate around the near-term platform momentum.
Expert Summary
Roblox is introducing an AI-driven age estimation system by year’s end to enhance user safety, particularly for minors. While the company is experiencing significant growth, investors are expressing concerns about potential engagement friction and increased spending, as highlighted by financial analysts. This strategic shift also occurs within a landscape of escalating legal and regulatory scrutiny concerning online child safety measures.