Roblox Earnings: Mixed Results With Strong Revenue Growth but Elevated Spending

Roblox Stock at a Glance

• Fair Value Estimate: $60
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

Roblox Earnings Update

Roblox RBLX again reported mixed results as the second quarter, like the first, featured strong revenue growth along with expanding operating losses caused by elevated spending.

Despite strong underlying metrics, the stock fell in response to the news, as we suspect investors expected larger cost cuts. Management continues to project operating leverage improvement over the next few years as growth continues.

Cutting Roblox Stock Fair Value Estimate

We are lowering our fair value estimate to $60 from $65 due to slightly slower margin expansion from higher investment in infrastructure/safety and research and development, including spending on incorporating artificial intelligence into development tools.

Bookings expanded by 22% versus last year to $781 million as the platform continues to grow its customer base. Quarterly bookings were larger than in all of 2019 ($694 million) for the fourth quarter in a row. Underlying metrics improved across the board—global daily active users reached 65.5 million, up from 52.2 million a year ago. Roblox’s reach with older gamers continues to grow, as 56.1% of users were over the age of 13 versus 53.0% a year ago and 55.8% last quarter. Engagement also expanded by 24% to just under 14 billion hours of use, with hours among those over 13 years old up 32%.

Adjusted EBITDA margin dropped to 4.9% in the quarter from 8.5% a year ago because of the ongoing investment in headcount, safety spending, and increased R&D investment. Developer exchange fees fell to 21.2% of bookings from 22.4% a year ago, and management projects this expense will continue to expand more slowly than revenue. Infrastructure and safety spending jumped to 28.8% of bookings versus 24.7% last year. Management continues to expect that bookings will start to outpace the growth in infrastructure and safety spending in the third quarter and will surpass compensation expenses growth in the first quarter of 2024, signaling both the ending of the recent investment phase and the return to operating leverage within the business model.