Roblox stock surged on upbeat growth figures

Roblox made quite some noise after releasing their first quarterly report. Their revenue more than doubled, however, they showed a wider loss for the period. How is the company doing and what challenges might they be facing going forward?

Key takeaways on Roblox

  • Roblox published the first quarterly report as a public company after its recent direct-listing IPO.
  • Roblox keeps growing its user base, but losses per share were more than double than expected.
  • The company expects a slowdown after Covid-19 restrictions are lifted, but management remains confident and will target Asia and Eastern Europe to continue growing the user base.

 

What is Roblox?

Roblox is a free to download, interactive gaming platform where users can develop games and share those games with the community. The variety of games is large, and at the end the first quarter of 2021, there were over 26 million ‘’experiences’’ developed.

Robux is used to purchase games and in-app digital items to personalize avatars. Users purchasing Robux is the basis of the company’s revenue model. Roblox takes a cut from each transaction, 30% of in-game purchases and 70% of virtual items, some of which are developed in partnership with renowned, real brands. The sale of virtual items alone amounted to $1.9 billion last year.

The user-generated revenue model rewards Roblox with a network effect seen at Shopify, and Wix thus enabling the firm to focus on upfront costs and keep marketing expenses low. Games development costs are also very low, all they need to take care of are the tools needed for it. If you compare these relatively low costs, it is a major advantage over the traditional gaming companies that spend a lot on game development. For example, the highly anticipated Cyberpunk developed by CD Project cost over $300 million to develop and market, and that is only one single game!

The free-to-use developer toolkit is constantly expanded with new functionalities and texture, which allows the creator to constantly propose new and better experiences to players. What is more, you do not need to be a pro-coder to use it: most of it is drag and drop, allowing content creators to start without too much knowledge and focusing on content rather than technicalities.

 

Roblox's 2020 Hype Trailer (Source: YouTube)

User growth exploded in the pandemic

Schools’ shutdown and the cancellation of most activities for children cleared the way for Roblox to become one of kids’ favourite pastimes. 2020 has already been a decent year, with the end of the year seeing 32.6 million daily active users (DAU), and 30.6 billion hours of content engagement. In the first quarter of 2021, the number of DAU rose to 42.1 million and the total time combined time of engagement almost reached 10 billion hours – or double Q1 2020 – putting the company on track for a great start to the year.

 

A small selection of the millions of adventures available on the platform (Source: Roblox)A small selection of the millions of adventures available on the platform (Source: Roblox)

Q1 Earnings Report and stock price performance

Roblox’s revenue grew 140% from $162 million to $387 million a year ago. As a free game, investors should pay attention to the average bookings per DAU, which was sitting at $15.48 this quarter, up 46% year over year. Despite growing bookings and beating expectations, the company reported a $134.2 million net loss for the quarter, mainly due to growing operating costs. The loss per share amounted to -$0.46 vs. an expected -$0.21.

“Our first quarter 2021 results enabled us to continue investing aggressively in the key areas that we believe will drive long term growth and value, specifically hiring talented engineering and product professionals and growing the earnings for our developer community,” Roblox CFO Michael Guthrie said in a statement following the release of the earnings report.

Following the report’s release, the company’s stock closed at $64, up 43% since the company’s last private financing round back in January. The share price opened at 69.67 on Tuesday morning.

 

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Roblox's stock price since its direct-listing IPO in March (Source: TradingView)

 

To keep investors prepared for Q2, the company even published an April report, showing a decent growth all around – 43.2 million DAU (+47%) and $5.53 of bookings per users (+16%).

 

What is next for the company?

Growth is the main objective for Roblox, and the user base keeps expanding. The main challenge for the company will be to grow their average bookings per DAU, which will be the key metric to turning a profit this year or the next.

As with many community-based companies, moderation will also be key. As a large part of the community is represented by a younger audience, the challenge is to make sure that their platform stays a safe place for kids. Swear words are already filtered and replaced with hashtags, and the company is developing an age-rating for their games, making sure that every user is met with activities that will not make their parents angry.

Bearish commentaries sometimes state that the success will falter once Covid-19 restrictions are gone, but while this may be true, the company remains confident. “Even for countries coming out of Covid, we have seen amazing stickiness with our daily active users and bookings,” Dave Baszucki, chief executive and founder of Roblox, said in an interview. “Hours per user is moving more toward historic levels, but we’re very optimistic.” The company plans to expand into new geographic regions such as Western Europe and East Asia.

 

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