Roblox Earnings Update: Q1, ‘23

Overview

Roblox reported Q1 FY23 earnings on May 10, 2023. Here’s an overview of the results:

• Revenue was $655.3 million, up 22% YoY and beating estimates by $7.88 million.
• Net loss was $268.3 million. (Same quarter last year was a loss of $160.2 million.)
• Earnings per share was a loss of $0.44, missing estimates by $0.04. (Same quarter last year was a loss of $0.27.)

Segment Performance

Roblox measures:

• Daily active users (“DAUs”)
• Hours engaged
• Bookings
• Average bookings per DAU (“ABPDAU”)
• Average new and returning monthly unique payers
• Monthly repurchase rate
• Average bookings per monthly unique payer

Daily Active Users

Roblox’s DAUs were 66.1 million, up from 54.1 million YoY. Up 22% from last year. This is a great growth rate.

It might not seem like a huge amount, but the growth rate from 3 years ago (23.6 million) is 280%. That’s a 40% CAGR for those paying attention.

See the growth rate over time here:

Hours Engaged

Roblox had pretty good hours engaged. For the quarter, they had almost 14.5 billion hours engaged. That’s up from 11.7 billion hours engaged last year for a growth rate of 24% YoY.

It’s worth it here to ask “What’s pulling people in to this platform?”

Bookings

Bookings were $773.8 million, up 23% YoY.

This is an important graph that shows that the latest Q3 and Q4 were not a sign of weakness, just normal volatility. It’s easy to see that the growth rate is still strong.

Average Bookings per DAU

ABPDAU was $11.70, up 1% YoY. This is a bit of a disappointment, but it’s not a huge deal. What you don’t want to see is people having to spend big money on the platform. It’s good to see that Roblox isn’t squeezing users or developers for money. More on this later.

It’s worth noting here that ABPDAU is higher in the US and Canada than Europe and Asia. This is a good sign that Roblox has room to grow in those regions.

Average New and Returning Monthly Unique Payers

This is an interesting one.

2.7 million new monthly unique payers this quarter, up 17% YoY.

Average Bookings per Monthly Unique Payer

There’s some cyclicality here. You can see how each Q4 has a higher rate, as Robux are given as gifts for the holidays.

Key Metrics Analysis

As Roblox grows I’ll be looking at Average Revenue per User (ARPU), Customer Acquisition Cost (CAC), and Lifetime Value of a User (LTV).

As it stands right now, Roblox is still getting up and going, so calculating these things is very difficult.

On top of that, users evolve over time. A paying user today can potentially become a developer tomorrow. So right now, the main metric that I pay attention to is Daily Active Users and Hours Engaged.

Management Commentary and Guidance

David Baszucki, CEO:

Developers are flocking to Roblox right now. In March 2023, the number of developers who earned something on our platform grew 63% year-on-year to over 4 million. And the money to our community increased 24% year-on-year in Q1 to $182 million. There’s an enormous economic opportunity on Roblox, and we just — we see that continuing to grow with a lot of developers moving to our platform.

Roblox and the team there have built a platform that enables maximum freedom and play. In maximizing these two aspects, they’ve created an engine that ultimately rewards them and all stakeholders:

• Users
• Developers
• Employees
• Partners
• Investors

Michael Guthrie, CFO, regarding developer exchange fees:

We continue to look for efficiencies in our business, not only to drive our bottom line, but also to drive increasing economics to the developer community. And we’ll continue to do that over time. We’ve been sort of very steady in our approach of increasing that number. And as we garner efficiencies in the rest of the company, it really gives us the flexibility to balance increased investment in the community with a little bit of increase in the bottom line for the company. So we’ll continue to take that approach.

Putting their developers first is a great strategy. It’s a win-win for everyone. The entire engine is built on the dual role that users and developers play. Each user a developer, each developer a user. By shortcircuting the traditional “middleman” of a platform, Roblox has created a platform that is more efficient and more profitable.

Compare this to Hollywood, where movies are made by creators who think they have it figured out for what the audience wants. They make a movie, and then they market it to the audience. If the audience doesn’t like it, they lose money. With Roblox, the audience is the creator. They make what they want, and if the audience likes it, they make money directly.

Here, the quickest and tightest feedback loops win. In this case, it’s Roblox.

Financial Position

Straight from the 8-K:

As of March 31, 2023, the balances of our liquidity components were:

• Cash and cash equivalents: $828.1 million
• Short-term investments: $1,412.9 million
• Long-term investments: $851.0 million
• Minus: Carrying amount of the senior notes due 2030: ($989.3) million
• Cash and cash equivalents plus short-term and long-term investments totaled $3.092 billion in Q1 2023 and $3.133 billion in Q1 2022

Analyst’s Perspective

I recently came upon this:

While this is no indication that Roblox will continue to grow or become a powerhouse, I find it fascinating that they compete with entire companies like Playstation, Nintendo, and XBox. Just unreal.

Moreover, developer studios are starting to stand on their own in the Roblox platform:

LOS ANGELES, March 23, 2022 /PRNewswire/ — Gamefam, the leading game publisher and developer on Roblox, today announced a $25M Series A led by Konvoy Ventures, with participation from Play Ventures, Makers Fund, Bessemer Venture Partners and Galaxy Interactive. The raise has allowed the company to grow to a 100 plus person team of Gen Z digital creators and gaming industry veterans who are working together to develop popular games, authentic brand integrations and 360 degree franchises within the metaverse.

Gamefam provides creators with tools, resources and processes to manage their games more effectively so creators can focus on big creative ideas. Gamefam has helped creators raise game revenue, incorporate best-in-class analytics and live ops practices, and brought staffing, marketing, brand partnership and advertising opportunities.

With more than 6.5MM unique daily users in the US, and 15MM globally, Gamefam has partnered with top companies including Mattel, Disney, Paramount, WildBrain, WowWee, Sony and Ubisoft to develop custom branded experiences that deliver more reach and engagement than any traditional media channel, including TV.

Estimate Revisions

My estimates as of now aren’t concrete as I have yet to complete an in-depth financial model of the company.

Investment Thesis Review

The investment thesis of Roblox is that they create their own gravity that pulls in users over time. The more users they have, the more developers they have. In turn, the better the platform becomes.

Rating and Price Target

I stand by my original high rating. This may change when I publish the financial model for Roblox soon.

Future Focus and Actionable Advice

I’m still bullish on Roblox. While they still have a ways to go, I think they have a high probability of becoming a powerhouse. As long as they continue to put users and developers first, and look to create long-term value, they will do great. They have a history of already doing this, so I’m more confident in them than ever.

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