Roblox Looks to Gain Leverage on Expenses as Growth Reaccelerates  

Senior Equity Analyst

Neil Macker

DAUs

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Developer exchange fees

Infrastructure and trust & safety

Research and development

General and administrative

Sales and marketing

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Roblox operates an online video game platform that lets gamers create, develop, and monetize games for other players. The firm offers its developers a hybrid of a game engine, publishing platform, online hosting and services, marketplace with payment processing, and social network. Unlike a full-priced AAA title, there is no entry cost to try out Roblox or the vast majority of user-developed games. Thus, to drive booking growth and keep the Roblox model churning along, the new user must purchase and spend Robux, the platform’s tender. 

Roblox heavily benefited from the stay-at-home restrictions at the start of pandemic with very impressive top-line growth, even more so than its video game peers. It expanded its user base from 19.1 million daily active users, or DAUs, in fourth-quarter 2019 to 65 million in the second quarter of 2023. We project that the combination of popular games and large userbase will attract more users. Additionally, we expect that the firm will be able to further increase its penetration in non-U.S. markets. As a result, we expect that the growth will be slower than during the pandemic but that DAUs will exceed 108 million in 2027. 

The platform was also successful in driving quarterly bookings per DAU up from $12.37 to $15.40 by the second quarter of 2021. While Roblox’s DAUs grew faster outside of the U.S. during the pandemic, the firm is still leveraged to its domestic market as it generated 68% of 2020 bookings--despite only representing 33% of DAU in 2020. We expect this gap to shrink over the next decade as Roblox improves its penetration in post-industrial countries in Europe and East Asia. However, growth in. bookings per DAU has been and will continue to be slowed down by Roblox's further expansion into emerging markets where many young users will likely have even less access to disposable income. 

Longer-term, we assume the firm continues to invest in adding new features to help keep both developers and teenage gamers engaged with the Roblox platform While an all-encompassing metaverse may be very far from realization, we think that Roblox's steps toward a metaverse will help the platform hold on to users and developers as they age.

Business Strategy & Outlook

We assign Roblox a narrow moat rating derived from the network effect. The Roblox platform consists of three separate pieces that work together. The first is the Roblox Client, which players use on PCs, Android, iOS, and Xbox One to play games, connect and chat with friends, and make purchases. Roblox Studio, the second piece, is the development environment for users to create, publish, and operate their games. The final piece is Roblox Cloud, the infrastructure for both online games and development. 

Roblox doesn’t generates revenue from the sale of the Roblox client, games, or server space but via in-game transactions, avatar cosmetics, private servers, subscriptions, premium development plugins, and advertising for developers. All of these transactions are done in Robux, the Roblox currency that can be purchased at multiple price points with an effective exchange rate in the U.S. from $0.0125 per Robux (400 Robux for $5) to $0.01 per Robux (10,000 Robux for $100). Users can subscribe to monthly premium plans to lower the exchange rate to $0.0091. Roughly 90% of Robux are spent within three days of being purchased but the revenue for durable virtual goods is recognized over the life of the player (assumed to be 23 months under GAAP accounting). This difference accounts for the divergence between GAAP revenue versus bookings (the actual amount of Robux purchased in a quarter or year), which can be particularly glaring during high growth periods like 2020 when bookings were over 100% above GAAP revenue. 

Robux spent in games is split among three groups--app stores and payment processors (24%), developers (27%--25% based on transactions and 2% based on time spent in game by Premium subscribers), and Roblox (49%, further broken down to 14% for hosting and support, 9% for platform investment, and 26% as Roblox’s share). Developers receive payment in Robux, not local government currency. The developer can either use the Robux to buy development plugins, bid for advertising for their game within other games, or use the Robux to buy other games. If a developer in the U.S. wants to convert her Robux into dollars, the exchange rate back into fiat currency is $0.0035 per Robux but a developer must exchange at least 100,000 Robux ($350) to qualify. This relatively high minimum and unfavorable exchange rate mean that the vast majority of developers do not cash out their Robux. 

In 2020, Roblox paid out $329 million to 4,300 developers, up sharply from $112 million in payouts to 2,600 developers the year before. However, bookings for Roblox in 2020 hit $1.88 billion, up from $694 million in 2019, and there were roughly 1.27 million developers active in 2020. While most developers created games that generated limited playtime, over 18,200 games were played for more than 10,000 hours in 2020 but only 1,287 developers made over $10,000 in developer exchange fees, with only 305 over $100,000. 

Roblox’s network effect moat source derives from its unique business model. By providing a game engine, tools, and servers along with monetization opportunities, Roblox offers a tempting starting point for young gamers who are interested in creating games with a relatively simple to use game engine along with a robust set of tools and tutorials. The library of user-developed games attracts more young players who spend money in-game. The growing user base along with the ability to monetize games entices more developers from not only the current player base but also experienced developers and brands/celebrities looking to market to younger users. Examples of the brands and entertainers using the Roblox metaverse include Netflix, which launched games around its Stranger Things franchise, and Lil Nas X, who hosted three concerts in November 2020 on the platform. Additionally, the social aspect of the Roblox Client helps to reinforce the networks as the relatively young players entice their friends to join Roblox and play the games together. Players can use Robux to create a private server to ensure that that their friends and themselves can play an instance of a specific game. 

Like its peers in the video game industry, the pandemic accelerated both Roblox’s growth and the strength of its network effect. The company had 10.3 million daily average users in the first quarter of 2018 that grew to 19.1 million in the fourth quarter of 2019. Lockdown restrictions along with younger users needing new outlets to connect with friends helped to drive DAUs to 43 million in the second quarter of 2021. While the expansion of the user base is likely somewhat of a pull forward in demand, we do think it demonstrates how the network effect could continue to drive long-term growth. 

The firm also benefited on the booking side as average quarterly bookings per DAU jumped from $11.62 in the first quarter of 2018 to $15.40 in the second quarter of 2021, with a peak of $17.31 in the fourth quarter of 2020. The ability to grow bookings per DAU while massively expanding the user base in a highly competitive video game landscape reveals the strength of the network effect moat source.

Narrow

Economic Moat

Roblox

Roblox Corp. engages in the provision of online gaming services. Its platform consists of Roblox Client, Roblox Studio, and Roblox Cloud. Roblox Client is an application that allows users to explore 3D digital worlds. Roblox Studio is the toolset that allows developers and creators to build, publish, and operate 3D experiences and other content accessed with Roblox Client. Roblox Cloud includes the services and infrastructure that power the human co-experience platforms. The company was founded by Erik Cassel and David B. Baszucki in March 2004 and is headquartered in San Mateo, CA.

Earnings data Q3 2023

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

In August 1989, David Baszucki started a company called Knowledge Revolution which made educational physics and mechanical software. He created a 2D simulated physics lab called Interactive Physics, enjoyed by students around world. During this time he hired his first employee, Erik Cassel, who would go on to form Roblox with him. 

David and Erik launch the beta version of Roblox, DynaBlocks, in order to scale the creativity and imagination of their former company.

The company raises $560,000 of Series A funding, putting the company's pre-money valuation at $1.5 million. 

After realizing people had a hard time remembering its name, the company officially changes from DynaBlocks to Roblox, and Roblox launches on September 1, 2006.

Roblox becomes compliant with COPPA by adding a safe chat feature to protect users under the age of 13.

Roblox raises $2.9 million in Series C venture funding from First Round Capital, Altos Venters and Kleiner Perkins—putting the company's pre-money valuation at $6 million. 

The company holds its first Hack Week by inviting Roblox developers to work on outside-the-box ideas to present.

An iOS version of Roblox is released, and Roblox is now mobile.

Roblox allows developers to exchange their Roblox digital currency, Robux, into real-world currency. Pays to play.

Roblox launches on Xbox One starting with 15 games.

Roblox VR for Oculus Rift launches with more than 10 million games in 3D, bringing user-generated, social gaming to virtual reality. 

Roblox closes a $92 million funding round led by Meritech Capital Partners and Index Ventures.

The company closes $150 million in Series F funding with Greylock Partners and Tiger Global Management.

Roblox forms a partnership with Chinese tech giant Tencent, by focusing on education in order to enter the Chinese market. 

Roblox reaches a major milestone by hitting 100 million active monthly users.

Roblox receives $150 million in a Series G funding round led by Andreessen Horowitz. 

In response to the global pandemic, Roblox creates "Party Place," a venue for virtual birthday parties and other meetups. 

Roblox experiences rapid revenue growth in response to continuing stay-at-home mandates.

Roblox partners with Columbia Records to host its first virtual concert featuring Lil Nas X.

The company goes public on the NYSE under the ticker symbol RBLX. Roblox now has more than 31 million daily users who use it an average of 2.6 hours per day. The company has a reported revenue of $589 million during the first nine months of 2020. 

blog.roblox.com
SEC Form S-1
Marketwatch
Forbes
Inc.
New York Times
TechCrunch
The Wall Street Journal

State Street

Earnings season kicked off with strong figures from major banks last week, but new reports from financial services monolith State Street and tech startup Roblox have led to steep stock declines on Monday.

Stock Market Warning Signs Mount As State Street And Roblox Suffer Steep Losses After Earnings

Roblox (NYSE: RBLX ) stock is sinking lower by more than 11% today after the company released its key metrics for March. Daily active users (DAUs) totaled 66.2 million, up by 26% year-over-year (YOY).

5 Investors Betting Big on Roblox (RBLX) Stock

Roblox Corp (NYSE:RBLX) shares tumbled after the video game company disclosed key metrics for March that showed a likely drop in average bookings per daily active user. The San Mateo, California company said estimated average bookings per daily active user for March were between $3.73 and $3.85, a range that indicates a year-over-year drop of 2% to a gain of 1%.

Roblox plunges after disappointing March metrics

Shares of Roblox Corp. were sinking 12% in Monday morning trading after the company released its final installment of monthly metrics, which showed a sequential drop in daily active users.

Roblox's stock sinks after company's final monthly bookings update underwhelms

Roblox released some performance metrics for its business in March, and it seems the market was a little disappointed. There were some good numbers in the report, and the stock might just be pulling back after incredible year-to-date gains.

Here's Why Roblox Stock Crashed Today

Roblox stock plunged after the company disclosed some key metrics for March. Is RBLX stock a buy right now?

Roblox Stock Plunges On Key March Metrics; Is RBLX Stock A Buy Right Now?

Shares of Roblox tumbled 11% on Monday after the gaming company released its March 2023 metrics report.

Shares of Roblox fall 11% after company releases March update

SAN MATEO, Calif.--(BUSINESS WIRE)--Roblox Corporation (NYSE: RBLX), a global platform bringing millions of people together through shared experiences, today released certain key metrics for the month of March 2023.

Roblox Reports March 2023 Key Metrics

Roblox (RBLX) closed the most recent trading day at $45.70, making no change from the previous trading session.

Roblox (RBLX) Flat As Market Sinks: What You Should Know

SAN MATEO, Calif.--(BUSINESS WIRE)--Roblox Corporation (NYSE: RBLX) today announced that it will report the company's first quarter 2023 financial results before the opening of the U.S. markets on Wednesday, May 10, 2023. Roblox will host a conference call to answer questions regarding its financial results on the same date.

Roblox to Report Fiscal 2023 First Quarter Financial Results on May 10, 2023

Coinbase

Samsara

KeyCorp

Liberty Media Corp-Liberty SiriusXM

Charles Schwab

Sirius XM Hlds

Texas Pacific Land Trust

Warner Bros Discovery Inc

Qualtrics International

March 2023 was a volatile month for the capital markets, with the failure of three U.S.

The Five Best- And Worst-Performing Large-Cap Stocks In Q1 2023

Dutch Bros

Chevron

Growth stocks have gotten a bad rap, but it's not all doom and gloom out there. Despite some ongoing issues, all the major U.S. stock indices rose in this year's first quarter after enduring terrible selloffs in 2022.

3 Growth Stocks That Could Double Their Revenue in 2023

Spotify

Tesla

The metaverse isn't quite living up to the hype voiced just a couple of years ago, raising questions about Roblox's growth potential. Now that EV newness has worn off and competition is creeping in, investors are rethinking Tesla's pricing paradigm.

Wall Street Says 3 of Q1's Hottest Tech Stocks Are Done Rallying

ARK Web x.0 ETF

Advanced Micro Devices

Activision Blizzard

Microsoft

NVIDIA

It might feel as though investors' enthusiasm for video game equities and related fare has waned amid the economic reopening following the coronavirus pandemic. That sentiment belies long-ranging opportunity in the space.

Gaming Outlook Evolving, Increasingly Bright

Cloudflare

Investors are continually searching for the next significant market opportunity to continue augmenting their wealth. Recently, one of the most thrilling trends has been the emergence of the metaverse.

3 Metaverse Stocks Sitting in the Sweet Spot

Autodesk

Matterport

Robo Global Artificial Intelligence ETF

Unity Software

Investors are always looking to tap into lucrative long-term market opportunities to build wealth over time. Perhaps one of the most exciting trends has been the metaverse, which catapulted to fame following Facebook's much-talked-about name change to Meta in late 2021.

The 7 Best Metaverse Stocks to Buy in March 2023

Blackrock Future Financial And Technology ETF

First Republic

iShares U.S. Regional Banks ETF

Payoneer Global

Vanguard Financials ETF

Financial Select Sector SPDR Fund

How did the collapse of SVB affect ETFs? Will 2008 repeat itself?

ETFs in Focus on Fears of Another Global Financial Crisis (Revised)

Roblox's prospects are likely to improve in 2023. In fact, I argue that H2 2023 could positively impress the Street. The one question mark I have over its business is its free cash flow profile; what you need to know.

Roblox: Set Up For Take Off, What You Must Know

Catherine Wood (Trades, Portfolio)'s Ark Invest is fresh off a horrid year, with many of its innovation-focused funds now down more than 70% from their all-time highs. Despite the beating her funds took, Wood is continuing to take advantage of the plunge in tech stocks, adding to stakes in various growth names that the broader market has thrown in the towel on.

Catherine Wood Buys Microsoft and Roblox Amid Market Turbulence

Disney

Netflix

What Stocks To Buy Today? 3 Entertainment Stocks In Focus

Roblox Corp. shares RBLX were falling 1.7% in Wednesday morning trading after the gaming company released some metrics for February in the second-to-last instance of Roblox monthly disclosures. Roblox said it had 67.3 million daily active users in the month, up 22% from a year before.

Roblox discloses 67.3 million daily active users for February, stock falls

SAN MATEO, Calif.--(BUSINESS WIRE)--Roblox Corporation (NYSE: RBLX), a global platform bringing millions of people together through shared experiences, today released certain key metrics for the month of February 2023.

Roblox Reports February 2023 Key Metrics

Meta will need to show free cash flow growth coinciding with much smaller cash burn from its Reality Labs division. Nvidia's indirect exposure to the metaverse, alongside its broader diversification in other high-growth sectors, should bode well for investors long-term.

3 Top Metaverse Stocks Ready for a Bull Run

SVB Financial Group

Roku

Aehr Test Systems

Ambarella

Bill.com

Eiger BioPharmaceuticals

iRhythm Technologies

Oncorus

Rocket Lab USA

Sangamo Therapeutics

Since SVB Financial's (NASDAQ: SIVB ) principal subsidiary, Silicon Valley Bank, collapsed last week, Wall Street has been in turmoil. With SVB seized by government regulators and New York's Signature Bank (NYSE: SBNY ) shut down, banking stocks have been in free fall and don't show any signs of reversing direction.

10 Companies That Had Tons of Money in SVB When It Collapsed

The California-based bank was closed Friday by the state's financial regulator—the largest to fail since the Great Recession.

News for Roblox Stock (RBLX)