Roblox Earnings: Weakening Engagement Has Weighed On Growth

Key Morningstar Metrics for Roblox

• Fair Value Estimate: $50.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Roblox’s Earnings

Roblox RBLX delivered 19% year-over-year booking growth during the first quarter, meeting the midpoint of management’s guidance. However, player engagement tailed off during the quarter. While management believes it has made changes to address the underlying causes of this shift, it provided a tepid outlook for second-quarter bookings growth (about 13% at the midpoint). It cut its full-year growth outlook to about 15% from 20%. Ups and downs are expected, and we’ve trimmed our growth expectations, cutting our fair value estimate to $50 per share from $60. We still believe the market is overly discounting Roblox’s long-term potential and that the shares are attractive.

Global daily active user growth decelerated year over year to 17% from nearly 22% last quarter, while hours of engagement increased only 15%, with the average usage per DAU declining year over year in every region. Management blamed poor game performance (especially on lower-end devices, resulting from platform enhancements made late last year) and suboptimal content curation. With changes to rectify these issues starting in April, Roblox has seen DAUs, hours of engagement, and bookings growth return to around 20% in the United States and Canada over the past three weeks. Management isn’t ready to declare victory, prompting what it characterized as a more conservative growth outlook for the year.

Roblox believes it can deliver roughly the same profitability and cash flow it projected to start the year. The firm is off to a good start on that front, with the adjusted EBITDA loss improving by $44 million year over year to $7 million, already within the range of full-year improvement management had forecast. It also produced $191 million of free cash flow during the quarter, up from $82 million a year ago, and more than halfway to the low end of management’s full-year target ($350 million-$420 million).