Roblox Earnings: Strong User Growth and Cost Leverage Bode Well for 2024

Key Morningstar Metrics for Roblox

• Fair Value Estimate: $60.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Roblox’s Earnings

Roblox RBLX reported strong third-quarter results, with promised operating leverage starting to materialize while underlying growth remained solid. Management withheld some details before its planned analyst day next week, but the firm appears set to reap the benefits of several of its recent investments. We are maintaining our $60 fair value estimate and believe the shares still look attractive after a nice jump on the earnings release.

Bookings increased 20% versus last year, with solid results in most regions. Europe was particularly impressive, with bookings up 37% on a 22% increase in daily active users and 12% growth in revenue per user. Globally, 20% more daily active users were on the Roblox platform than a year ago, and quarterly spending per user was flat despite the mix shift in users toward less mature markets.

The stability in revenue per user reflects continued strong engagement, with hours of use up 20% to more than 16 billion. Usage also continues to shift toward older cohorts, with hours up 27% among those over 13 years old. With Roblox coming to the PlayStation in October, users and engagement are poised for continued strong growth during the fourth quarter.

The adjusted EBITDA margin expanded for the first time in 2023, hitting 9.7% in the quarter versus 7.3% a year ago. Infrastructure and safety spending, excluding personnel costs, declined 1% year over year, dropping to 15% of bookings from 18%, as this cost line grew slower than bookings for the first time in several years. Roblox has also slowed hiring this year, holding personnel costs, excluding stock-based compensation, flat at 23% of bookings. Stock-based compensation does continue to grow rapidly, however. Including stock-based compensation, as we do in our valuation, profitability deteriorated year over year, though much less than during the first half of 2023.