Roblox Q4 Hurt By Slowing User Growth

Roblox (RBLX) posted a relatively weak end to 2021, with slowing user growth and engagement in the U.S. stoking fears that the firm won’t be able to continue its momentum coming out of the pandemic. However, the platform still saw decent growth in global daily active users, which hit 49.5 million, with improving reach among older gamers as more than 52% of users were over the age of 13. Engagement also improved to over 10.8 billion hours, up 28% versus a year ago. Despite the weak end to the year, January metrics appear strong with DAUs up 32% year over year to 54.7 million and hours engaged up 26%.

We are maintaining our $100 fair value estimate. With shares trading at a significant discount to our fair value estimate, we believe investors can gain exposure to the firm’s unique model with a large margin of safety, but we expect shares to remain highly volatile. 

Profitability was also weaker than we’d expected, with the adjusted EBTIDA margin down to 21.8% during the quarter from 39.8% last year due to the ongoing investment in headcount and increased developer payouts. While Roblox has been hiring to catch up with the DAU explosion, we expect the pace of hiring to slow down. Developer exchange fees exceeded 20% of bookings for the second straight quarter, up from 18% a year ago. While these payouts will expand as a percentage of bookings, we don’t project that the firm will hit its 25% target without changing the Robux payout ratio.

Bookings improved 20% to $770 million during the quarter as the firm benefited from the larger audience and increased engagement. Roblox’s efforts to increase the age of Roblox users was also evident in other areas, as 40% of the top 1,000 games had a majority of users over the age of 13 and 50% of engagement was from this older group. Geographic diversity also continues to improve as DAUs in Asia-Pacific doubled and now represent 23% of the total versus 15% a year ago.