Thesis Summary

• Market overreaction: Roblox sold off by around 10% on the Louisiana AG child-safety suit. The market is pricing in headline risk and injunctive friction more than cash fines. However, business has never been better: DAUs 111.8M +41% YoY, hours +58% YoY, bookings +51% YoY with 13+ now being 64% of DAUs and 66% of hours which reduces pure COPPA exposure.
• Precedents: Precedents by Epic, YouTube, JUUL and Meta de-risks the bear case because history has shown how regulators force defaults and extract fines, but users and engagement don’t vanish. Damage is done slightly to margin and conversion friction, not structural demand.

Current Price

The tape sold off around 10% to around current levels on news that the Louisiana AG filed a child-safety lawsuit against Roblox. Additionally, media, petitions, and a Chris Hansen documentary announcement kept pressure on the sentiment.

To estimate how many states the market is pricing in to join on this lawsuit, I back-solved from the lawsuit day sell-off. At $118.28 and 739.1M FD shares, the market cap is around $87.42B. A 10% drop in price reflects roughly a $8.74B equity value move at today's market cap. Barron's Baton Rouge Business Report GuruFocus

If we assume only part of that drop reflects cash fines or settlements, the rest being future friction and risk of a higher premium, then:

• If 5% of the drop reflects the fine EV, it gives room for a $0.44B fine “budget”. However, taking into account FTC EV with a 50% chance of a $250M fine, the remainder implies ~26 states at $12M per state
• If 10% of the drop reflects the fine, it gives room for a $0.87B budget, minus $0.125B FTC EV, leaves $0.75B for the states. To fit in 51 states, this implies $14.7M per state. 10% fines only work if you assume a nationwide coalition at the upper end of per-state penalties on additional non-state legal costs.

From this data, we can see that investors are discounting injunctive product changes and increased operating costs, and multiple compression, not just a fine.

Currently, Roblox requires ID-verified 17+ experiences, voice chat for 13+ with verification, under-13 cannot access unrated experiences, and under-13 ads are prohibited. With these current practices, Roblox’s pure-COPPA exposure is reduced. Q4 Capital Yahoo Finance Companies Market Cap SEC Roblox Investor Relations

Precedents

Epic Games: $520M total penalty plus mandated voice and text chat off for minors and stricter parental controls. Engagement rebounded to record levels within a year, showing how engagement can remain resilient in a top-tier game. However, costs and friction rose. Q4 Capital Companies Market Cap MLQ

YouTube: $170M settlement, and YouTube removed personalized ads and several personalization features on “made for kids” content. While kids creators took a hit, YouTube continued to grow overall and the “hit” was concentrated in child-directed inventory rather than destroying the platform usage. If enforcement narrows monetization or personalization for U13 traffic on Roblox, expect cohort-specific drag rather than whole platform collapse.

Juul: Around a $438.5M fine across 34 states with marketing and age verification restrictions. This shows us that the state AG coalition playbook usually is a substantial cash fine plus durable conduct remedies. SEC Q4 Capital

Meta: Over 33 states filed actions alleging youth harms from the addictive design of their platform, however they sought design changes rather than a platform level shutdown. Angel One Yahoo Finance

Regulators tend to force defaults, tighten parental and age controls, and extract fines. The users usually don’t vanish, however the damage is to margin and growth drag, not mass user loss.

Regulation

Likely regulation from the Louisiana AG suit, COPPA updates, and political momentum based on precedent include:

• More off by default for DMs and voice chat for 13 to 17 year olds, tighter friend discovery, and stronger parental consent flows. Q4 Capital Companies Market Cap