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Roblox Posts Mixed Q1; Reducing Fair Value to $80

Investors can gain exposure to the firm’s unique model with a large margin of safety.

Roblox RBLX reported a mixed start to 2022 as user growth reaccelerated but bookings declined year over year. However, the platform posted decent underlying metrics with growth in global daily active users to 53.1 million from 49.5 million last quarter and an improvement in reach among older gamers as 52.3% of users were over the age of 13 versus 48.6% a year ago. Engagement also expanded to over 11.8 billion hours, up 28% versus a year ago.

We're lowering our fair value estimate to $80 from $100 to account for lower bookings per DAU, partially offset by higher DAU growth, over the next few years. With shares trading at a significant discount to our updated 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 continued to be weaker than we expected, with adjusted EBTIDA margin falling to 10.8% during the quarter from 29.2% last year due to ongoing investment in headcount, spending on safety measures, 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 23% of bookings, up from 18% a year ago. We believe this category will be lumpy over the next few years but we still don't project the firm will consistently hit its 25% target without changing the Robux payout ratio. Bookings fell 3% versus last year to $631 million during the quarter as the previous year benefited from lockdown restrictions. However, the firm retained the majority of its pandemic-influenced gains as the first quarter is up 59% on a compounded annual basis versus 2020. Geographic diversity also continues to improve as DAUs in the Asia-Pacific region almost doubled to 12.6 million and represents 23% of the total versus 15% a year ago. Management noted India and Japan have shown strong DAU expansion over the last year with considerable growth still available.

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