Roblox has just shown what happens when a viral party ends and the guests go home. The gaming platform reported results for the quarter ended September 30th, and the headline looks decent. Revenue rose 16 per cent to US $1.57 billion, from US $1.36 billion a year ago. The trouble is hiding underneath.
Start with the people. Daily active users fell nine per cent to US $138 million, against US $152 million in the same quarter last year. Every region shrank. US and Canada lost 10 per cent, Europe five per cent, Asia-Pacific nine per cent and the rest of the world 11 per cent. Hours engaged dropped 15 per cent to US $33.8 billion. Last year’s surge, powered by a handful of viral games, is now being compared against itself, and it hurts.
Bookings, the cash-like measure that tells you what players actually spent, fell 12 per cent to US $1.70 billion. That is the first year-on-year decline in the data provided, and it follows an eight per cent rise in the second quarter and a 43 per cent jump in the first. US and Canada bookings dropped 13 per cent, Europe 12 per cent, Asia-Pacific seven per cent and the rest of the world eight per cent.
Why is revenue up while bookings are down? Roblox books revenue slowly, spreading it over the 27-month average life of a paying user. So last year’s bumper bookings are still trickling into this year’s revenue. The change in deferred revenue tells the story: it added just US $136 million this quarter, against US $573 million a year ago, a fall of 76 per cent. Revenue is a rear-view mirror. Bookings are the windscreen.
Spending per user is slipping too. Average bookings per daily user fell three per cent to US $12.29. In US and Canada it dipped four per cent to US $38.52, and in Europe it fell seven per cent to US $11.20. Asia-Pacific rose two per cent to US $5.37 and the rest of the world three per cent to US $5.07. The payer base shrank as well. Average monthly unique payers fell 16 per cent to US $30.3 million. Those who still pay are spending a little more, with average bookings per payer up five per cent to US $18.69.
Now the bills. Total costs and expenses rose 12 per cent to US $1.86 billion, from US $1.66 billion. Cost of revenue grew seven per cent to US $318 million. Developer exchange fees, what Roblox pays creators who cash out their earnings, fell six per cent to US $403 million, or 26 per cent of revenue. Infrastructure and trust and safety costs rose five per cent to US $385 million. Stripped of staff pay, depreciation and share awards, the core infrastructure and safety spend grew 24 per cent to US $258 million, or 16 per cent of revenue. Roblox is paying more to keep children safe and servers running while fewer of them turn up.
Research and development rose nine per cent to US $435 million. General and administrative costs climbed 40 per cent to US $203 million, partly because of US $49 million in legal settlements with certain states and territories over youth consumer protection and digital safety. The company excludes these from adjusted earnings, arguing they are rare and unpredictable. Investors may feel that child-safety litigation is becoming a habit.
The big surprise is sales and marketing. Spending jumped 66 per cent to US $111 million, from US $67 million a year ago, and it was nearly double the US $61 million of the previous quarter. It is the biggest single quarterly figure in the data and seven per cent of revenue. Roblox is plainly spending to win back users and to push efforts such as advertising on the platform. Whether the money works will show in the next set of numbers. Headcount rose to about 3,400, from about 3,000, and personnel costs excluding share awards rose 12 per cent to US $281 million.
The loss narrowed, though. The net loss was US $230 million, against US $258 million a year ago, or 32 cents a share. Loss from operations was US $283 million, a little under last year’s US $296 million. Interest income of US $60 million on a US $6.2 billion pile of cash and investments helped. Adjusted Ebitda, a measure that strips out many costs, tripled to US $138 million from US $46 million. Note that it ignores US $298 million of stock-based pay and the US $49 million legal bill. Roblox has now beaten its own definition of profit while still losing real money.
Cash was healthier. Operating cash flow fell 28 per cent to US $395 million, but free cash flow of US $364 million was still strong, down 18 per cent. Capital spending collapsed to US $31 million from US $104 million, which flatters the figure. Net cash and investments stood at US $5.2 billion, after US $1.0 billion of debt.
The outlook is the sting. For the fourth quarter Roblox guides revenue of US $1.47 billion to US $1.58 billion, up four per cent to 12 per cent. Bookings are seen at US $1.89 billion to US $2.00 billion, down 10 per cent to 15 per cent. It expects a net loss of US $363 million to US $423 million and an adjusted Ebitda loss of US $10 million to US $70 million. Capital spending is set to leap to US $380m, which would push free cash flow to a negative US $105 million to US $190 million. After a year of cheap growth, the bill is arriving.
Share count is a minor worry. Fully diluted shares rose two per cent to US $755 million.
The hit game that lifted Roblox is cooling, the audience is thinner and the marketing budget is fatter. Management needs the next blockbuster, and soon.
