Why Roblox Stock Got Rocked Today

Key Points

• Louisiana is suing Roblox for endangering children with its online gaming platform.

• The state accuses Roblox of prioritizing profits over child safety.

• Roblox doesn't actually have any profits.

• 10 stocks we like better than Roblox ›

Roblox Corporation (NYSE: RBLX), the online gaming platform that's especially popular with teens and younger kids, saw its stock sell off hard this morning -- down more than 10%. The shares have clawed back some of their losses as the day progresses, but as of 11:10 a.m., they remain down 7.1%.

You can blame Louisiana for that.

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Louisiana takes a shot at Roblox

And why? Louisiana Attorney General (AG) Liz Murrill announced today that her state is suing Roblox for:

• "Facilitat[ing] the distribution of child sexual abuse material and the sexual exploitation of Louisiana's children."
• Failing to implement "basic safety controls to protect child users from predators."
• And also failing to warn its users, and their parents, of these dangers.

"Roblox is overrun with harmful content and child predators," argues the Louisiana AG, and "prioritizes user growth, revenue, and profits over child safety."

Of particular concern, the AG alleges "a group of 3,334 [Roblox users] openly traded child pornography and solicited sexual acts from minors."

Is Roblox stock a sell?

This is terrible PR for Roblox. More substantially, Louisiana is seeking monetary damages, unspecified "injunctive relief" (which might simply mean stronger safety protocols, but could potentially forbid the company from doing business in the state), and proof that "adequate safety features" have been put in place -- all of which threaten Roblox's ability to achieve "user growth, revenue, and profits."

Speaking of profits, it's worth pointing out that Roblox doesn't actually have any. The gaming company has lost money every year it's been in business, and most analysts agree Roblox will continue losing money at least through 2029. The company is free-cash-flow positive, however, generating $942 million of free cash flow over the last 12 months.

That still works out to a price-to-free-cash-flow ratio of 92.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool has a disclosure policy.