Roblox Earnings: Strong Metrics Drive Bookings Growth; Operating Leverage Improvement on the Horizon

Roblox Stock at a Glance

• Fair Value Estimate: $65
• Morningstar Rating: 4 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow

Roblox Earnings Update

Roblox RBLX posted a mixed first quarter, one with strong revenue growth but expanding operating losses. Underlying metrics remained strong with improvement across the board. Global daily active users (DAUs) reached 61.1 million, up from 58.8 million last quarter and 54.1 million a year ago. Roblox’s reach with older gamers continues to expand, as 55.8% of users were over the age of 13 versus 52.3% a year ago. The firm also rebounded to positive free cash flow in the quarter after three straight quarters of losses. We maintain our $65 fair value estimate.

Bookings jumped 23% versus last year to $774 million as the platform has continued to both retain and expand its pandemic-swollen customer base. Quarterly bookings were larger than in all of 2019 ($694 million) for the third quarter in a row. Engagement also expanded by 23% to over 23.8 billion hours of use. Average booking per DAU for the period was flat year over year at $11.70, well ahead of our estimated 10% decline. This marks the first quarter without a year-over-year decline since the second quarter of 2021. We still expect average booking per DAU to drop, albeit slowly, as the new user mix shifts away from the U.S. and Western Europe toward more emerging markets.

Adjusted EBITDA margin dropped to 6.0% in the quarter from 10.8% a year ago due to the ongoing investment in headcount and safety spending, as well as increased infrastructure investment. Developer exchange fees increased slightly to 23.6% of bookings from 23.3% a year ago. Management expects the expense category will continue to expand slowly over the near to medium term. Infrastructure and safety spending jumped to 27.6% of bookings versus 22.5% last year. Management now projects that bookings will start to outpace the growth in infrastructure and safety spending in the third quarter, and that they will surpass growth in compensation expenses in the first quarter of 2024—signaling both the end of the recent investment phase and the return to operating leverage within the business model.