Following Roblox Corporation's (RBLX.US) strong second-quarter results and raised 2025 guidance, JPMorgan has reiterated its "Overweight" rating on the metaverse pioneer and raised its December 2025 price target from $125 to $150. This target price represents nearly 20% upside from the stock's Friday closing price of $125.03.

The earnings report showed Roblox's Q2 revenue increased 21% year-over-year to $1.08 billion. Bookings surged 51% year-over-year to $1.44 billion, significantly exceeding management's expected range of 22%-25% and surpassing the investor consensus midpoint of 40%. Daily active users, a key metric for measuring user engagement on Roblox, grew 41% year-over-year to 112 million. User engagement hours jumped 58% to 27.4 billion hours. Daily active user bookings increased 7% year-over-year, marking the highest growth rate since Q1 2021.

Daily active users showed strong performance across all regions and age groups, with particularly notable growth in the Asia-Pacific region and among users aged 13 and above.

JPMorgan noted that the improvement in bookings translated into stronger profits and free cash flow. Adjusted EBITDA reached $320 million, up 180% year-over-year, exceeding management's guidance of $160-180 million. Free cash flow was $177 million, up 58% year-over-year, also surpassing management's expectations of $105-120 million.

JPMorgan added that, similar to previous quarters, the company achieved operating leverage in infrastructure, safety and trust spending (up 25% year-over-year), and personnel costs excluding stock compensation (up 20% year-over-year), though this was partially offset by increased developer revenue sharing (up 52% year-over-year). Free cash flow conversion was lower than usual due to a previously disclosed $30 million developer payout that was delayed from Q1 to Q2.

Roblox's strong Q2 performance was driven by the viral success of a simulation game called "Grow a Garden" on the platform. However, JPMorgan noted that while viral hits like "Grow a Garden" contributed to growth, more than half of the bookings increase came from experiences outside the top ten.

JPMorgan stated that "Grow a Garden" generated approximately $140 million in Q2 bookings, slightly below their previous estimate of $150 million, but the firm had underestimated the new user acquisition and positive impact on other platform experiences. Over 75% of "Grow a Garden" daily active users also engaged with at least one other experience on the same day, and three additional new experiences – "Steal a Brainrot," "99 Nights in the Forest," and "Ink Game" – achieved over 10 million daily active users.

JPMorgan believes the company's bookings uptrend is more broadly based rather than dependent on a single game. The emergence of multiple viral hits and strong growth in experiences outside the top ten reinforces the firm's confidence in the sustainability of platform momentum, even if "Grow a Garden's" popularity declines.

Additionally, Roblox provided Q3 guidance above market expectations, projecting bookings growth of 41%-45% year-over-year, well above the market consensus of 18% and JPMorgan's estimate of 25%. Management indicated this guidance reflects continued growth momentum in July, but conservatively assumes that user engagement and monetization trends from recent viral hits will gradually return to underlying growth trends, while also facing challenging comparisons in August and September.

Q4 bookings growth guidance is 20%-24%, with management incorporating additional conservative assumptions, suggesting growth will moderate even against easier comparisons.

Roblox raised its 2025 bookings growth guidance from 21%-23% to 34%-37%. On the profitability front, Roblox raised the high end of its 2025 adjusted EBITDA guidance by $230 million to $1.28-1.34 billion (66% year-over-year growth, 22% margin). Free cash flow guidance was raised by $155 million at the high end to $1.025-1.085 billion (69% year-over-year growth).

This EBITDA target implies margin expansion of approximately 400 basis points at the high end, exceeding the company's original annual target of 100-300 basis points and above the previous guidance of 225 basis points.

JPMorgan concluded that Roblox is progressively capturing more of gamers' time and spending, with significant monetization potential including advertising and e-commerce as two accelerating new revenue streams. The firm expects this will support sustained bookings growth above 20%, and combined with the company gradually emerging from its heavy investment cycle, free cash flow could achieve over 30% compound annual growth through 2027.

JPMorgan added that if platform growth trends continue, there could be further upside to valuations in the future.