Roblox Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 13 speakers on the call.

Operator

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Roblox First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Stephanie Notani, you may now begin your conference.

Speaker 1

Thank you, Brent. Good morning, everyone, and thank you for joining our Q and A session to discuss Roblox's Q1 2023 results. With me today is Roblox Co Founder and CEO, David Buscucki and CFO, Michael Guthrie. As a reminder, our shareholder letter, press release, SEC filings, supplemental slides and a replay of today's call can be found on our Investor Relations website atir.roadblocks.com. On this call, we will make some brief opening remarks and reserve the rest of the time for your questions.

Speaker 1

Call. Our commentary today may include forward looking statements, including but not limited to our expectations of our business, future financial results and business and financial strategy. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward looking statements and such risks are described in our risk factors included in our SEC filings, including our most recent reports on Form 10 ks and 10 Q. You should not rely on our forward looking statements as predictions of future events. We disclaim any obligation to update any forward looking statements except as required by law.

Speaker 1

During this call, we will also discuss certain non GAAP financial measures. Reconciliations between GAAP and non GAAP metrics for our reported results can be found in our press release as well as in our supplemental slides. For our webcast participants. Please note that question icon at the bottom of your screen where you can submit your questions. With that, I'll turn it over to Dave.

Speaker 2

Thank you. Hey, and good morning, everyone. We are going to start with a prelude. And I want to talk a bit about bookings acceleration and the generation of cash, which is really exciting for our business. We're going to talk about our future bookings growth rate relative to cost of sales, infrastructure and compensation expense, which is also a wonderful story.

Speaker 2

And then finally, we'll touch base on innovation and what we've done in the fruit since the start of this year. Our revenue in Q1 grew 22% to 655,000,000 Our bookings grew 23 percent to $773,000,000 And I want to just highlight bookings is how we run the business. We run the business based on cash. Our bookings growth rate year on year over the last five quarters has gone from negative 3% to negative 4% to plus 10% to plus 17% to plus 23%. We believe this is being driven by 8 quarters of innovation and awesome engineering that have expanded platform and our platform is growing in all directions and we'll touch on that.

Speaker 2

GAAP loss was $268,000,000 Well, cash from operations was positive $173,000,000 We generated over $100,000,000 of free cash and operational cash in the quarter. And this just highlights the difference between cash and our GAAP loss, which is driven by deferred revenue and other factors. Finally, our cash has been steady relatively over the last 6 quarters, and we have approximately $3,000,000,000 of cash with no external financing. On the user side, our DAUs are up 22%, with an all time high of 66,000,000 DAUs. Our hours are up 23% year on year, once again an all time high of 14,500,000,000 hours of engagement in Q1.

Speaker 2

All regions are up and I want to highlight that our 13% and up segment It's growing 31% year on year, which bodes very well for our future growth as that's an amazingly large available market for us. On the developer community, money flowing to our developer community increased 24% year on year to a record $182,000,000 in Q1. We have some exciting things happening in our business. Our bookings growth year on year is already exceeding our cost of sales growth year on year. And we believe in Q3 of this year, our year on year bookings growth will exceed our infrastructure year on year growth.

Speaker 2

This is a testament to the efficiency on our infrastructure spend and the way we have built out our redundant data center in ASH. I want to highlight that we spent almost $400,000,000 of cash on infrastructure over the last year and we're still showing positive cash flow in Q1. Finally, we believe in Q1 of 2024, our year on year bookings growth We'll pass our year on year compensation expense growth through just operational excellence. We are We have not suffered layoffs. We continue to highlight that we're being very thoughtful in hiring the best and growing our headcount efficiently.

Speaker 2

On the cash side, once again, I highlighted we're in an awesome cash position. And On the innovation side, we continue to innovate. Our vision is to bring together a 1000000000 people every day with optimism and civility. And we're very bullish about this vision. We continue to feel very positively about this opportunity.

Speaker 2

In the last, 8 quarters, we've driven a lot of innovation. I want to highlight on the innovation we've really executed on since January 1st this year. And that innovation falls in categories of cost control, revenue Acceleration AI Generative Creation, International Aging Up and Our Vision of Social Communication. We've got a 15 year history of innovation and we believe innovation is once again contributing to our bookings acceleration. On the cost efficiency.

Speaker 2

We've been using AI and machine learning for quite some time to drive the efficiency of our safety organization, which is really the primary focus of our business. And we've gotten to the point where we're highly automating reviews of 3 d objects, audio and images. On the revenue side, I want to highlight that our advertising system is now in test. We have over 200 developers that are participating. We are not going to share the number.

Speaker 2

We will make a small amount of advertising revenue in Q2 of this year. And I'll quote, what the NFL shared with our advertising system Is that portals have helped the NFL reach and convert a high percentage of new users into their experience. We're really excited about this. It is a new ad format that complements image and video that is very immersive and native to Roblox. We've launched 2 AI generative accelerators to help our creators create better and create more quickly.

Speaker 2

1st is a material generator that allows developers to create any type of 3 d material purely by using a few words. The creator on Roblox says, I would like a brick wall that's a little bit covered with moss. That's enough to generate a 3 d material. We're proud that we did this in early this year. And we're also launching code generation.

Speaker 2

Roblox has an amazing repository of Lua code and we're using this to train a code generator that won't just help people auto complete, that really helps people create and script on Roblox. On the international side, we continue to drive the vision That Roblox is a platform that will work around the world and also drive the vision that anyone's creation can go live in many, many countries. I want to highlight Japan, which is now growing at over 100% year on year on daily actives. It's been driven by some advances we've made on semantic search and the quality of our translation. We continue behind the scenes to drive the quality, The performance and efficiency of our core three d engine and we've made enormous strides on our vision of social communication as well.

Speaker 2

Since the start of the year. Voice on Roblox is now being used by almost 10% of over teen daily users in the USA, 9% to be exact. And we've rolled out lip sync as well on our journey to fully animating avatars on the platform, either using lip sync or ultimately camera. A fun other thing just to highlight, by day 7, based on all the work we've done on contacts and friend finding, people are finding 10% more real life friends on the platform in the 1st 7 days than they were a year ago. I just want to once again recap and then we'll start answering questions.

Speaker 2

Long term mission is 1,000,000,000 users every day connected with optimism and civility. We're focusing on driving bookings growth with innovation. Behind that bookings growth, we have an enormous focus on operational excellence and efficiency. And once again, We believe by Q1 of next year bookings on a year on year basis will be growing more quickly than cost of sales, infrastructure expense or headcount compensation expense. And then finally, the cash that we spin off as much as possible, we want to really share with the creator community to drive innovation.

Speaker 2

With that, we'll open up for questions. Thank you.

Operator

Your first question is from the line of Andrew Crum with Stifel. Your line is open.

Speaker 3

Okay, thanks. Good morning, guys.

Speaker 4

A lot of

Speaker 3

discussion around slowing investment spending, I'm assuming or I did not hear anything around developer exchange fees. So Mike, I guess, is the 24% as a percentage of 1Q bookings, which is that a good quarterly run rate for the business over the next several quarters or does that continue to move up? And Dave, as you think about this line, curious if there is a competitive response to Epic's Unreal Editor for Fortnite in terms of the economics the company pays out to its developer community. Thanks.

Speaker 2

Yes, I'll go and then I'll let Mike talk about long term exchange. Developers are flocking to Roblox Right now, in March 2023, the number of developers who earned something on our platform grew 60 3 percent year on year to over $4,000,000 And the money to our community increased 24% year on year in Q1 to $182,000,000 There's an enormous economic opportunity on Roblox and We see that continuing to grow with a lot of developers moving to our platform. I'll let Mike comment on the developer exchange rate.

Speaker 4

Yes. On the rate, we're pleased that we have continued to increase the rate of growth in developer exchange over the last few years. We continue to look for efficiencies in our business, not only to drive our bottom line, but also to drive increasing economics developer community and we'll continue to do that over time. We've been sort of very steady in our approach of increasing that number. And as we garner efficiencies in the rest of the company.

Speaker 4

It really gives us the flexibility to balance increased investment in the community with A little bit of increase in the bottom line for the company. So we'll continue to take that approach.

Speaker 3

Understood. Okay. Thanks guys.

Speaker 4

Thanks.

Operator

Your next question is from the line of Omar Giuseppe with Bank of America. Your line is open.

Speaker 5

Hi, thanks for taking my question and good morning. I wanted to maybe double click a little bit on that Fortnite Creative question that was just asked. As you can see, some in the investment community have seized on it as a source of competition, even though the platforms are very different. So I wanted to ask you, given the early stages of development of the metaverse, How would the emergence of a second ecosystem over time actually be beneficial or symbiotic to Roblox and its developers? And I have a follow-up after that.

Speaker 2

Hey Omar, great, great question. And I want to share a bit about how we think of the innovation at Roblox and how we have for the last really 16 years. As you correctly know, it's still very early in the creation of the metaverse. We See a place where Roblox can have a 1,000,000,000 daily actives. We think about innovation as inventing and creating things that have never been done before to help drive this vision of the metaverse.

Speaker 2

And one of those is UGC Creation, which we launched over 16 years ago that we do believe is part of this vision. There are a lot more innovations that are coming from us and we shared the vision around social communication. We shared our vision around AI driven acceleration. We shared our driven around an ad platform. We're just very bullish that it's going to take a lot more new invention and the creation of many more long port poll technologies to get to that 1,000,000,000 daily actives and that's what we focus our engineering and product teams on.

Speaker 5

Okay. All right. So maybe a follow-up to that. I noticed that a studio that got its start on Roblox recently raised the $25,000,000 Series A Venture Capital round. So as the most successful studios in your system become larger and their IPs and services are capable of standing on their own.

Speaker 5

How does Roblox think about incentivizing them to keep monetizing on platform rather than through some social channel or another creator platform.

Speaker 2

Yes. I want to highlight That's not really a future looking thing. That's something that exists right now and that those incentives today are already massive and continue to grow. Our top creators create experience that generate tens of 1,000,000 of dollars and you can see As they're starting to raise money, the size of those creators is getting larger. What I shared earlier, which is continued bookings growth, continued economic activity, operational excellence.

Speaker 2

So Roblox runs as lean as possible, both on cost of sales, on our headcount expense and on our infra. What that means is an efficient utility that pushes as much money back to those creators as possible. So we think those incentives are already there and we think it's all about operational excellence and moving as much economic activity on the world on an enormously large platform to that developer community.

Speaker 5

Great. Thank you very much.

Operator

Your next question comes from the line of Matthew Thornton with Truist Securities. Your line is open.

Speaker 6

Hey, good morning, Dave, and good morning, Mike. Maybe two quick ones, if I could. I guess, first, any color on trends that you're seeing in April into May and maybe just how we should think about what a normal second quarter looks like for you guys seasonally because obviously we've had a couple of really weird year. So any color there would be helpful. And then just secondly, I think Mike last quarter you guys talked about, maybe 2 quarters ago, high single digit type EBITDA margin for the year.

Speaker 6

Is that still the way we should be thinking about 2023 or has that evolved at all? Thanks again, guys.

Speaker 4

Hey, Matthew. Thanks for checking in. We Did our last monthly metrics presentation in March, and I think we're all excited and glad that we did it and glad that we're done doing it. There's 2 years of pretty good healthy data out there that reflects seasonality and COVID and reopening from COVID. So I think there's plenty of data out there.

Speaker 4

The benefits of Q2, of course, are April was really strong with the Easter holidays And June is strong because school is out and it's the start of the summer and summer is always a big time for the platform as it is for lots of companies. In terms of margins, we've talked a ton about it today on the call. It's again, it's really about efficiency. It's about Coming to a point in the company's history where we have returned to really substantial bookings growth as a result of making incredible investments in people and infrastructure And now being able to allow that growth to creep up to a level where it exceeds our investments in people and infrastructure. So We feel really, really well set up to combine growth with operating leverage over the next few quarters years and that's really what's important to us.

Speaker 4

So I just would say expect to see a business over the next few years that is really high growth and high operating leverage. We're excited about that and we'll continue to make the right investments in the company for long term value. We feel really strongly that the investments in people and info that we've made over the last couple of years allow the business to grow and hold on to a substantial growth that happened at the beginning of COVID. And now we find ourselves with, as Dave said, peak users, peak hours of engagement. I think a business growing faster than almost anything in digital entertainment, gaming, social.

Speaker 4

So we're really satisfied with where we are and feel like we're at a place where we can make a really nice combination of investments in growth and leverage.

Speaker 6

Great. Thanks, Mike. I'll hop back in the queue.

Operator

Your next question is from the line of Matthew Cost with Morgan Stanley. Your line is open.

Speaker 7

Good morning, everyone. Thanks for

Speaker 8

taking the questions. I have 2 here. Maybe the first one for Dave. Just looking at the over 13 age group in the Q1, I think it grew a little over 4,000,000 DAUs up from the 4th quarter, which looks like One of the biggest increases that you've seen, I guess, is there anything that you would call out that those older users are engaging What is driving that uptick in over 13 DAUs? And then I guess just for Mike on the margin side, I think in the press release there is comments about seeing some improvement on gross margins as a result of prepaid cards, which you talked about in the past, but there's a comment in there about credit cards.

Speaker 8

Is there an element of direct to consumer payments that you're working in the mobile app that might be driving some of that leverage. Thanks.

Speaker 2

Yes. Hey, first off, on Our vision and we've been sharing it since before we went public is this whole vision of our product platform and category is for all ages around the world. And we've been working on this for many, many years with the vision that Younger people, older people play on Roblox, will learn on Roblox, will start to connect when they're at work, will go to concerts on Roblox and a wide variety of these types of things. We're really pleased with the older growth as we continue to improve the quality of our engine simulation as we improve the quality of search and discovery. We are seeing more and more developers and creators start creating experiences that are exciting for people all over the world.

Speaker 2

17 through 24 is growing very, very rapidly. We're seeing experiences like Frontlines, which are really been funded by our creator fund and are driving much more high quality type experiences that older players are flocking to. We think there's still enormous headroom in the older player base as people start to use Roblox as a way to socially connect as well. So we're really bullish on the long term size of that cohort. On the credit card thing, I just want to highlight where we're saying there.

Speaker 2

We're seeing that our bookings year on year growth rate because already passed our cost of sales year on year growth rate. And it's because there's so many ways for our community Spend money on Roblox, they use prepaid cards, they can use credit cards, in addition of course to our partners at Google and Apple. And as that expands, we're seeing the leverage we get as bookings grows faster than that cost of sales.

Speaker 8

Okay. Thank you.

Operator

Your next question is from the line of Clark Lampkin with BTIG. Your line is open.

Speaker 9

Hi, thanks for taking the question. I wanted to come back to bookings acceleration. Curious if you guys could provide a general sense for how maybe that's going to be balanced between user growth relative to monetization initiatives now that we're seeing more product coming out of the development pipeline. And maybe bigger picture as we're thinking about this sort of divergence in bookings and OpEx trends. Is it reasonable for us to think about sort of 20% as a reasonable rate maybe over the balance of this year into next year.

Speaker 4

Hey, Clark. On bookings, we have multiple things that drive our bookings. We start With a user base and we look at the frequency of the user base, how often do they come to Roblox? That gives us our daily active users. Then we look at how Much time those users are spending with us, hours per DAU, that number has continued to grow And is it really healthy across most parts of the world and most age groups?

Speaker 4

And then we look at how much capital is being spent per hour of engagement on the platform. And again, over the last few quarters, we've seen really healthy growth in our monetization. So It really is a combination of more users, spending more time with us and spending, more money on the platform as well. If you look at the monthly unique payers in our supplemental materials, you'll see that Primarily, the growth is the bookings growth has been driven by more payers, but there is slightly increase in the monetization per payer. And if you look at the monetization by region, which we broke out for the first time.

Speaker 4

So bookings per DAU by region in the supplemental materials. What you see is good year over year growth in all regions except in Europe, where we simply have had high growth in Eastern Europe visavis Western Europe. On the other hand, if you look at the peaks of monetization in the U. S. And Canada, what you're starting to see is this maturation of payer cohorts.

Speaker 4

We know over time they run for a very, very long time and they tend to monetize more as time goes on. And so in the U. S, we have more of those cohorts. You actually can see higher peaks in terms of the monetization even then when we were at the peaks of COVID. Other parts of the world we think will actually get there as well over time as their payer cohorts become larger and more mature.

Speaker 4

So right now, like in the U. S, we have an incredible mix of older payer cohorts and new payer cohorts coming from older age demos that's powering a lot of really good growth. So Generally right now, most of the top line growth is just driven by the fact that our users continue to grow. And if you've got our DAU charts and our engagement charts, They've really been up into the right over the last 4 plus years, but we are certainly seeing healthy signs of people spending, Especially those users have been with us for a while spending incrementally.

Speaker 9

And maybe if I could follow-up really quickly just on the sort of topic of gift cards and prepaid cards. Is that something that we should expect to be driven more by international markets? Or is there higher propensity there? And if adoption does sort of pick up in international markets, Does that have positive implications for margin in those territories too? Thanks a lot.

Speaker 4

Thanks, Clark. It has positive implications for margins anywhere in the world. And we continue to look for places where Consumers don't have access to prepaid cards and make sure that they have access to it because it's just a low friction, very much in demand source of currency in our user base. We are definitely growing internationally. There is a Probably a higher propensity for stored value in foreign markets.

Speaker 4

So we're excited to continue to find places where there is growth, but there'll be growth literally globally and our team is highly focused on growing the prepaid card business and actually just doing an excellent job.

Speaker 2

I'll give an example in complementing the over 100% year on year growth we're seeing in Japan. Roblox gift cards are now available in 65,000 different convenience stores in Japan.

Operator

Your next question is from the line of Bernie MacTiernan with Needham. Your line is

Speaker 7

open. Great. Thank you very much. I was just wondering, Dave, you mentioned Frontline. So I was wondering what types content you're seeing that are most popular for older age demos.

Speaker 7

And is it always the highest fidelity games and reason being, how do you think generative AI tools could impact the amount of content that is really geared towards aged up to aged demos.

Speaker 2

Yes. I want to highlight that Roblox is a place where new types of experiences that people have never seen before have been created and become huge favorites with 1,000,000,000 and 1,000,000,000 and 1,000,000,000 players. And Frontline's is a little more traditional high resolution type experience. But many of the experiences on Roblox and you name the favorites, Adopt Me, Jailbreak, Brookhaven have huge older audiences as well and really become international favorites as well as all age favorites. So just Really, really proud of that.

Speaker 2

We are uniquely poised to accelerate our whole platform with AI generative technology. And it's you're seeing early signs of it now on material generation and code generation. But ultimately, it means 3 d experience generation, it means avatar generation, it means the quality of real time language translation. It means the quality of search and discovery. And because of the size of our user base and our 60,000,000 to 70,000,000 daily active users, We have an enormous opportunity to really reinforce, train and accelerate the quality of our AI.

Speaker 2

So Keep an eye on that. We're really proud with the early signs from our code generator and our material generator, but we're really building a platform to use this throughout Roblox.

Speaker 7

Understood. And just a follow-up for Mike on the commentary on infrastructure and compensation leverage. Is this a change in prioritization for margins. Is it a higher bookings outlook? Just trying to think about what's driving this better outlook now for some of this cost leverage.

Speaker 4

Hey, Bernie. Well, one place to start would be the bookings growth rates over the last five quarters. So it's probably Not escaped your attention that we're back over 20%. The investment that we've been making over the last couple of years has all been geared towards keeping and growing a massive audience and getting through COVID and the reopening and still growing on top of that. So We felt like those investments were very high ROI.

Speaker 4

It would be proven out with return to bookings growth. So we are now at a much higher level of bookings growth. You have higher top line growth. You just got more room for operating leverage. And so we feel like It's a good time to allow that growth to outstrip the growth in new hiring and in infrastructure and investments.

Speaker 4

Those are decisions that we've made relatively recently. So they don't happen overnight. We'll start to CE benefits from that as we talked about in the back half of this year and early next year and then as we go into 2024 and beyond. So very much a result of getting things done, getting teams to a certain scale, getting infrastructure to a certain scale and ensuring that our top line was back to high growth.

Speaker 7

Understood. Thanks, Mike. Thanks, Dave.

Operator

Your next question is from the line of Andrew Urquowitz with Jefferies. Your line is open.

Speaker 10

Hey, thanks for taking my questions. Really appreciate the DAU by region. That's how we model, so it can make life a lot easier for On that data though, could you just give a little bit of color like it's interesting that Europe is not a much higher rate than say APAC. So just if you could give us a little color around where one, where you think those numbers could go? Can they approach U.

Speaker 10

S, Canada. And then if you would kind of break Europe down between, say, Western and Eastern, what those trends, look like?

Speaker 4

Yes. Hey, Andrew. So in terms of the monetization levels, I think it's still Let me just I'm going to pull something up in front of me. If you basically look at the U. S.

Speaker 4

Data first And what you see is, see how in the Q4 of 2022, the monetization was actually above any of the prior 4th quarters, even at the beginning or in the middle of COVID. Again, that has to do with the length of the time payer cohorts have been with us. So we're adding lots of new users and new payers, but we're also really benefiting from these older cohorts that have been with us for a while, which increased monetization That's a really great trend. Places like Europe and APAC are still newer markets for us in a sense. Our level of penetration in those markets is far lower And we're still building a payer base that will compound over time.

Speaker 4

We are in Europe and in APAC, Those markets are more aged up at the beginning than is the U. S, which started out with a younger user base and then ultimately aged up. And you can see in those markets, we still have not gotten back to where the monetization was at the peak of COVID, yet pretty good growth in APAC. And again, as I said in Europe, it's just a mix shift between super high growth right now in Eastern Europe and slightly less growth in Western Europe and those 2 were just The Virgin in terms of the economic benefits. Ultimately, in certain markets in Europe and Asia Pacific, yes, we The monetization should be fairly close to the wealth in that part of the world.

Speaker 4

It should track GDP per capita pretty closely In places like UK and ANZ, we've seen very similar monetization to what we have in the U. S. And Canada. So there are other parts of Western Europe where I think that will be ultimately be true. In Asia Pacific, Southeast Asia is very different than Japan.

Speaker 4

So as Dave talked earlier, Japan is growing very quickly. It's still a relatively small amount of our APAC user base engagement and monetization, but over time that trend will move very much towards In Japan, we'll move very much towards what we see in the U. S. And Canada. So we'll just have to watch it over time, but It will definitely move up over time.

Speaker 4

And I will call out that even though rest of world is a much lower number, we've sort of built a dominant user base and engagement base in places like Latin America and that has served us incredibly well. It's fantastic growth and the strong bookings cohorts there as well.

Speaker 10

Got it. I appreciate the color. And then I guess Just one follow-up for David. On the advertising product, I know it's really early. What's been the reception from brands.

Speaker 10

Are they gravitating towards a certain type of ad? Are you finding brands that wouldn't normally engage with Roblox, but now they can because there's You have a short form opportunity here. Just kind of curious, what the early commentary is and How your views have been shaped around advertising?

Speaker 2

There's 2 types of advertising visions that we have on Roblox. I would say one is traditional, which is Roblox is a platform where an image from a brand can show up on a virtual billboard and any experience anywhere. So imagine One of our partners is introducing a new movie and for 1 or 2 days they want people throughout Roblox to see a movie poster or something like that. What is much bigger and more disruptive is the notion of gently offering advertisers the ability to bring people to their experience and explore it in 3 d. We've already shared some of our partnerships, Nike, Vansworld, Gucci Gardens, the NFL experience.

Speaker 2

These are called portal ads And these allow in a native non invasive way for users who are hanging on on Roblox who might want to jump into that experience to go there and experience it. This is a new ad format. It's a format where people go and experience something in 3 d spatial reality where they go to Gucci Garden, where they go to Van's World. This is what I'm really excited about given how disruptive it is. And this is where we're seeing early great signal.

Speaker 2

Once again, you saw the quote from the NFL. So, so we'll keep you up to date on it. We're very bullish on it. We'll essentially be creating this new type of advertising market. And we're fortunate on Roblox that we have so much engagement, 14,500,000,000 hours in Q1 that it's a fertile place to really launch this.

Speaker 2

So more to come, but great early signals and especially on portal ads.

Speaker 11

Got it. Thank you, guys.

Operator

Your next question comes from the line of Tom Champion with Piper Sandler. Your line is open.

Speaker 8

Hi, this is Jim on for Tom. Thanks for taking the question. I just had one for David on the Game Fund. Can you talk about progress here and how much funding has been used inception to date. I guess we're familiar with Frontlines, but is sort of like the hit rate high enough that We should expect more game funds or something similar in the future?

Speaker 8

Thanks.

Speaker 2

Yes. I'll have Mike dig up the numbers while I'm chatting if we can find them for you and if they're public. I want to highlight That the primary way Roblox has grown and always will grow is self-service. And I want to highlight that the primary way we've gotten to where we are, all of The majority of the experiences on Roblox and we're familiar with all of them have gotten there with literally no intervention. We've used the game fund and I want to highlight we also have an educational community fund to jumpstart certain areas.

Speaker 2

In the case of the game fund, we wanted to help developers take the risk of creating experiences that might be more attractive for older players. I want to highlight side by side, we're doing the same thing in education. So the work we've done with First Robotics, The work we've done with the Boston Museum of Science are somewhat similar and that we're jump starting educational experiences. I don't want to quote where we may go, but you could imagine in addition to experiences for older players or for education, There is the opportunity for experiences around mental health. There is the opportunity for experiences around working together in a 3 d office that are also things that we may fund someday.

Speaker 2

We're going to pull up the numbers and see if we can share anything with you on numbers.

Speaker 4

Yes. So Jim, the fund is peermarked at $25,000,000 We have not spent all of that capital. But today's point, while we are very happy with some of the performance and of the experiences in the game front, we do track it all the time and we look at it on a weekly basis. The vast majority of the experiences on the platform are self started and just exist on the economics of our platform.

Speaker 8

Great. Thank you.

Speaker 4

Thanks.

Operator

Your next question is from the line of Jonathan Kees with Daiwa. Your line is open.

Speaker 11

Great. Good morning, guys, and thanks for taking my questions. I wanted to, I guess, follow-up on Dave's commentary about the ads. The 2 types of the address, but more specifically how that's going to be delivered. The self serve, you guys have been conservative in terms of talking about its contribution to the top line and kind of push that more towards 2024.

Speaker 11

So I just find it kind of interesting you're not talking about a testing of that in currently going on and they'll make a contribution in Q2, albeit Nothing material. So just wanted to, among other things, get an update in terms of the ad rollout, self serve specifically and when you could be contributing somewhat materially.

Speaker 2

Yes. I'll comment. We expect this year to roll out self-service on this, essentially a full ad server for both Image and Portal ads, something that's allows advertisers On their own, publish these types of experiences to Roblox. We are being very conservative on this. We do expect to make, I don't know if we would call it significant revenue, Mike.

Speaker 2

I'll let you comment on that as far as far as what our internal things are, but we're not sharing our forecast externally.

Speaker 4

Yes. I mean, again, there'll be something in the Q2 and we'll talk more about it after that. But I'm I certainly wouldn't be changing models for 2023 based on advertising today.

Speaker 11

Got it. Got it. That's helpful. And if I may, just this one's more of an update. You talked about layered clothing, the number of users, just wondering what the number of users are for this last quarter.

Speaker 2

Yes. We'll see if we can dig it out. I want to highlight the bigger thing that's happening here, Which is this year, the migration to everything on our platform being created by our community. And that includes clothing tech, avatar tech and it includes the migration to the point where Every avatar can be animated and have facial animation as well. So view layered clothing our system with what we believe will be a big enhancement on the diversity and breadth of the type of avatars on the system and layered clothing is maybe what we call a first metric on that.

Speaker 2

Once again, we're pulling up some numbers to see what we can share with you.

Speaker 4

Yes. Jonathan, this is actually a current number, so meaning in May, but 267,000,000 users have acquired at least a single item of layered clothing.

Speaker 11

Great. That was helpful. It was a big jump too from last quarter too. So Thanks

Speaker 2

a lot.

Speaker 4

Thank you.

Operator

We have time for one more question from the line of Brandon Ross with LightCheck Partners. Your line is open.

Speaker 4

Hey, thanks for taking

Speaker 12

the question. Just wanted to end the call kind of where it started with this cost discussion. And this may be an unpopular framing with the investment community, but It just sounds like you have so many opportunities, especially when it comes to things like generative Why what are you leaving on the table by actually taking some margin and not investing more. Are there opportunities that you could be speeding up or expediting in any way or uncovering and especially in the wake of the competition that was discussed earlier from Epic. Thank you.

Speaker 2

Yes, I want to highlight that we continue to hire rapidly. We've got a very mature product engineering platform right now and we're going to continue hiring all the way through the end of this year, next during the year beyond. We think we're our really almost optimal hiring rate starts to intersect bookings growth in Q1 of next year. So we don't believe we're leaving anything on the table.

Speaker 4

Hey, Brandon, it's Mike. Yes. Interesting question. I appreciate and we appreciate the question. It's really helpful to look at the business over the last maybe 3 years or so That covers the beginning of COVID and where we are today.

Speaker 4

I think we've tripled the number of people, more than triple the amount of spend on infrastructure. I think we spent over $700,000,000 on growing and improving our infrastructure. And hopefully what you heard today was the fact that bookings growth has reaccelerated allows that growth rate to exceed the rates of investment in headcount and in infrastructure, not that we are in any way Reducing dramatically those investments. We have always tried, if you look at the history of the company, I think one of the best examples of sustainable growth that I've ever seen. It's a consistent investment in things that make the business great and differentiated.

Speaker 4

It's organic growth, never trying to accelerate a user base, letting the product drive the user base that we deserve and constant investment in innovating and extending our lead constant investment in the developer community. So the content is growing and getting better all the time. Those things are just so much a part of what we do that we're not taking any dramatic steps, But we do find ourselves at a point right now where the bookings growth has really reaccelerated. And so we feel comfortable That number can be ahead of the key investments, but we will always be focused on innovating and staying a step ahead. That's just who we are.

Speaker 4

So it's a It really is a balance and I love the way we've ended the call and appreciate the question and both sides of this because There is there really are two sides. There's investing to stay ahead and there's also proving that you have a business model that is long term sustainable. If anything proves that out, just look at the last 6 quarters in the business. We've literally been at $3,000,000,000 of cash over the last 6 quarters, continuing to invest, continuing to spend almost $500,000,000 over the last 6 quarters in infrastructure and yet cash neutral because the business itself generates so much operating cash. So we really feel like we balanced it very well up until now and hope that we'll continue to balance Those things over the next few quarters and next few years.

Speaker 4

But that's the way we've always run the business. And ultimately, we think that drives Most long term value. So we appreciate the question. Thank you.

Speaker 1

Well, thank you for joining us today. And that's a wrap. Brent, you can close it

Speaker 4

out. Segment.

Operator

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Roblox Q1 2023
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