Roblox Earnings: Platform Improvements Drive Broad User Momentum and Appeal

Key Morningstar Metrics for Roblox

• Fair Value Estimate: $53.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Roblox’s Earnings

Roblox RBLX delivered consistent results, as bookings grew 22% year over year, exceeding the high point of guidance. Management said users reacted positively to changes made to the platform in the first quarter, driving a reacceleration in player engagement and the growth of daily active users. While we don’t believe Roblox will be able to increase the player base and usage at low 20% rates in the long term, usage metrics and profitability improvements this quarter have been a step in the right direction. We are increasing our fair value estimate to $53 from $50, given the slightly better outlook on growth in total bookings and the number of daily active users.

Global daily active user growth accelerated to 21% from 17.5% last quarter, reaching just shy of 80 million. Improvements to creator monetization and content promotion have increased the variety of content reaching the top of the Roblox marketplace, broadening the platform’s appeal for new and current users. The return of platformwide events and better content curation led to hours of engagement growing by 24%. Average hours per DAU were up 2.5% and increased in all major markets. Management believes these improvements will be mostly durable through the end of the year, which we think will strengthen the platform’s network effect.

Roblox produced higher profitability and cash flow than it projected. Adjusted EBITDA was $66.5 million, roughly half the high end of full-year guidance. It also produced $111.6 million of free cash flow during the quarter, up $207 million from a year ago. Consequently, management raised full-year guidance on nearly all metrics, with bookings expected to increase 19.4% at the midpoint and an adjusted EBITDA range of $92 million to $132 million. Stock-based compensation growth (18% in the second quarter) continues to hamper profitability.