Roblox Q4 2024 Earnings Report

SPS Commerce EPS Results

• Actual EPS: -$0.33
• Consensus EPS: -$0.46
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: N/A

SPS Commerce Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.37 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

SPS Commerce Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 8:30AM ET

SPS Commerce (NASDAQ:SPSC) provides cloud-based supply chain management solutions in the United States and internationally. It offers solutions through the SPS Commerce, a cloud-based platform that enhances the way retailers, grocers, suppliers, distributors, and logistics firms manage and fulfill omnichannel orders, optimize sell-through performance, and automate new trading relationships. The company also provides Fulfillment, an electronic data interchange solution that scales as a business grows, where companies use a single system to manage orders and logistics from various sales channels, including wholesale, eCommerce, and marketplaces; and Analytics product that enables organizations to enhance visibility into how products are selling through a single connection across various sales channels, including wholesale, eCommerce, and marketplaces, as well as enhances access and usage of sales and inventory data through a combination of analytics applications, network of connections, and industry-leading expertise. In addition, it offers various complimentary products, such as assortment product, which simplifies the communication of robust, accurate item data by automatically translating item attributes, and hierarchies; and community product that allows organizations to accelerate digitization of their supply chain and improve collaboration with suppliers through change management and onboarding programs. The company was formerly known as St. Paul Software, Inc. and changed its name to SPS Commerce, Inc. in May 2001. SPS Commerce, Inc. was incorporated in 1987 and is headquartered in Minneapolis, Minnesota.

Roblox Q4 2024 Earnings Call Transcript

Presentation

[Operator]

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

[Operator]

Thank you. I would now like to turn the call over to Stephanie Notani, who may now begin your conference.

[Stefanie Notaney, Senior Director of Financial & Corporate Communications at Roblox]

Thank you, John. Good morning, everyone. Thank you for joining our Q and A session to discuss Roblox's Q4 and full year twenty twenty four results. With me today is Roblox Co Founder and CEO, David Bazzucchi and CFO, Mike Guthrie. Our shareholder letter, press release, SEC filings, supplemental slides and a replay of today's call can be found on our Investor Relations website.

[Stefanie Notaney, Senior Director of Financial & Corporate Communications at Roblox]

Our commentary today may include forward looking statements, which are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those described in our forward looking statements. A description of these risks, uncertainties and assumptions are included in our SEC filings, including our most recent reports on Form 10 K and Form 10 Q. You should not rely on our forward looking statements as predictions of future events. We disclaim any obligation to update these statements except as required by law. During this call, we will also discuss certain non GAAP financial measures.

[Stefanie Notaney, Senior Director of Financial & Corporate Communications at Roblox]

Reconciliations between GAAP and non GAAP metrics can be found in our press release and supplemental slides. With that, I'll turn the call over to Dave.

[David Baszucki, CEO at Roblox]

Thank you. Good morning. Hey, thank you all for joining us today. We're excited to share our outstanding results from Q4 and once again want to highlight are surpassing all of our guidance metrics, everything we provided on our Q3 earnings call and our twenty twenty three Investor Day goals. And we're going to lead you through a bit of our continued journey on moving to a goal of having 10% of the gaming content ecosystem running through our platform.

[David Baszucki, CEO at Roblox]

But let's start a bit with some of our results. Once again, high growth rates across really all of our key financial and operating metrics and surpassing our guidance in every single data point where we provided guidance in our Q3 earnings call. Q4 revenue $988,000,000 up 32% year on year ahead of our high end of guidance of $960 Q4 bookings $1,362,000,000 up 21% year on year ahead of the top end of our guidance, which was at $1,361,000 DAUs in Q4, '80 '5 point '3 million dollars up 19% year on year. Want to highlight once again in Japan and India Two very large markets for us, growth over 50% year on year. Also highlighting as we continue to expand the range of the ages on our platform, Over 61% of our total DAUs are over 13 and over 13 saw 26% year on year growth.

[David Baszucki, CEO at Roblox]

Hours eighteen point seven billion hours of engagement in Q4, up 21% year on year. Similar plus 50% in India and Japan, once again strong growth over 2013. On the cost and cap expenditure side, we've continued to be very diligent, except in one area, DevEx was up 25%. We shared over $922,000,000 with the developer community in 2024. And in Q4, we shared $280,000,000 through DevEx, which is up 27% year on year.

[David Baszucki, CEO at Roblox]

That's an all time high and it's really part of our commitment of moving as much money through our platform to creators. On trust and safety and infrastructure, this is our whole cloud. This is all of the AI supporting safety and civility. This is all of our live ops. This was up 2% year on year, and down 2% versus Q3.

[David Baszucki, CEO at Roblox]

I want to highlight this is all because of efficiency. We're improving quality on all metrics. This is as we improve the way we drive quality and efficiency with AI and the way we run lean infrastructure. That was 13% of revenue and 9% of bookings, which decreased to the last year. And I just want to highlight a lot of AI driven modernization, with quality that will share a bit more.

[David Baszucki, CEO at Roblox]

On personnel costs, not including stock based compensation, dollars 200,000,000, once again driving on operational excellence. We were at 20% of revenue and 15% of bookings. This decreased relative to the previous year both as a percentage of revenue and bookings. On operations, Q4 cash was up 29% year on year to $184,000,000 Free cash flow Q4 '1 hundred and '20 million dollars up 54%. Once again, all of our metrics above guidance, free cash flow above the high end of the guide at $115,000,000 For the year, free cash flow up over 5x from $124,000,000 in 2023 to $641,000,000 in 2024.

[David Baszucki, CEO at Roblox]

Let's pop into our roadmap. In 2024, really at the start of the year, in our first earnings call, we shared a commitment to perf quality, live ops, discovery and economy. All of these initiatives we believe contributed to our continued growth. And, want to highlight once again up and down our stack throughout the year, app launch time, crash rates, frame rates, overall app quality, all we believe contribute to higher engagement and spending. And a little highlight on infrastructure quality.

[David Baszucki, CEO at Roblox]

In December, our uptime hit five nines, 99.999% uptime, which is really a new high point for us and once again signifies commitment to engineering excellence. On the LiveOps side, in 2024, we introduced Platform LiveOps. We saw large content slate from the creators supporting LiveOps. We've seen a lot of great content breakout this year. Fish emerged as a breakout hit.

[David Baszucki, CEO at Roblox]

We've seen NFL Universe pop into the top 25 as far as bookings on the platform. We've seen SpongeBob from Paramount pop into the top 25, more to come on that as we talk about content. And finally, on the discovery side, we shared with all of you a commitment to transparent discovery that optimizes personalized results for everyone. I want to highlight that inexperienced hours for experiences beyond the top 1,000 grew faster than our top 1,000 this year. And that's a highlight to Discovery matching people with great content.

[David Baszucki, CEO at Roblox]

On economy, we at the start of the year shared a commitment to driving bookings per hour with a lot of improvements to our economy. We launched dynamic price floors. We moved our UGC economy for to UGC for all, which means we opened up our avatar marketplace to all creators. We launched inexperienced price optimization as well. This has driven monetization everywhere.

[David Baszucki, CEO at Roblox]

Bookings per DAU, bookings per hour and bookings per payer all increased in 2024 relative to 2023. And recently in Q4, we began to offer more Robux for users buying on platforms other than mobile, essentially giving Robux out roughly proportional to the cash we get in during the purchase. And this has improved the share of economics as well that we share with the developer community. On ads and brands, we've seen Elf Beauty on the platform. Amazon is now buying ads on our platform.

[David Baszucki, CEO at Roblox]

Mr. Beast, in conjunction with Beast Games, going live on TV and on streaming brought a Mr. Beast experience. We've hired a lot of key leadership in our ads engineering and product orgs. We're now live with Shopify integration.

[David Baszucki, CEO at Roblox]

And a cool cultural moment, five of the 10 top grossing twenty twenty four movies had activations on Roblox, including recently Beetlejuice and Wicked. In safety, constantly shipping improvements. We had over 40 releases this year and we launched our party product as well, which brings people together on the platform and made improvements in how we treat people of all ages as part of that. On the AI side, I just got the recent update on the number of AI pipelines and systems we're running in the on the platform. It's over 200 now.

[David Baszucki, CEO at Roblox]

We've been doing this for over four years behind the scenes on our safety and civility side. And an example of the innovations we're making is our voice safety model has been we open sourced it on Hugging Face because we want other people to take advantage of our expertise in voice safety. It's been downloaded over 20,000 times. We launched Avatar Auto Setup in Q4, which takes any, really industry three d avatar model and turns it into a fully functional Roblox avatar, skinning, boning, adding facts to the face, making it support facial animation. This is a real early signal in the ability of Roblox to use AI to ingest text, images, three d objects and convert them really into functioning Roblox objects.

[David Baszucki, CEO at Roblox]

And also Roblox Assistant is fully launched in Q4. It allows conversational creation inside Roblox Studio. Stay tuned because a lot more of that's coming. At RDC, we shared a vision that we believe we're going to see 10% of all gaming content running on the Roblox platform. Today, our market share is 2.4%, which speaks a bit to the available headroom we have as we drive our platform.

[David Baszucki, CEO at Roblox]

We see a fundamental shift incurring in the gaming ecosystem driven by our vision of technology. And that's a vision of three d streaming, supporting instant connection with three d content. It's instant connection on any device anywhere in the world. It's enabling developers to publish once to a cloud and once again have their content live any language, any platform and ultimately powered by AI. And finally, this is not video streaming.

[David Baszucki, CEO at Roblox]

This is three d streaming with very low latency local simulation of avatar and very responsive three d interactions. So this has really added a lot of clarity to just for all of you and for how we're working with our creators. So stay tuned on this. I want to share a bit of what we got planned for 2025 and beyond as part of this goal really of getting 10% of gaming on our platform. We're really watching the genres on Roblox.

[David Baszucki, CEO at Roblox]

Some of our genres, like Avatar Simulation are arguably already pretty huge relative to that gaming ecosystem. But there's a lot of opportunity for us in role playing, in sports and racing, in action and battle royale. We're really going to be driving platform tech, including perf and quality. We are we've announced an affiliate program to support on and off platform acquisition and supplement the organic growth on our platform. We're continuing to expand our economy, and we shared more about this with paid access games and our ad economy.

[David Baszucki, CEO at Roblox]

And then finally, I want to just give a little highlight of the future of AI on our platform. Just like in the early days of Roblox, when this immersive three d online multiplayer simulation that we created started to support new genres of gaming that have been popping up on Roblox, We believe AI will continue to do that. Our expectation is in Q1, we're going to be shipping text generation available inside Roblox experiences. That means creators will be able to take advantage of this and make, AI based characters. So we can imagine a virtual George Washington teaching Roblox in history driven by TextGen as a service.

[David Baszucki, CEO at Roblox]

We have also shared that we have so much three d data, we're going to be making available a three d foundational model, that is three d native and state of the art transformer based that has been trained with our data. We're going to make this available in studio. And in Q2, we expect to extend three d creation and three d generation in experience. That means a fashion creation game will start to allow everyone not just to mix and match an outfit, but to generate three d outfits with a text prompt. So stay tuned for that.

[David Baszucki, CEO at Roblox]

Finally, on safety, the foundation of our company, we have huge ambitions for the year. And I want to highlight safety and civility at Roblox isn't just under 13. When we think of safety and civility, we're talking every single age on the platform and building that in. So stay tuned on that. We continue to produce more and more operating leverage even as we bring in world class talent.

[David Baszucki, CEO at Roblox]

We're expanding and improving infrastructure, trust and safety systems and we're driving the economics. I'm going to hand over to Mike, but I do want to highlight, we continue to drive top line growth at 20 plus while we increase cash flow and while we're on to really this goal of 10% of gaming, which is almost a 4x for us as available headroom. With that, over to Mike.

[Mike Guthrie, CFO at Roblox]

Thanks, Dave, and good morning, everyone. I'm just going to make three quick comments before we jump into Q and A, just to make some clarifying statements. Number one is that 2024 was really an important year for us. From a financial standpoint, this is really the year when bookings caught up with the investments that we made post COVID and into early twenty twenty three. We talked about scaling margins and scaling cash flow and free cash flow.

[Mike Guthrie, CFO at Roblox]

And in 2024, we really delivered on those and generated very, very high operating and free cash flow across the course of the year. So we're really happy with that. Importantly, what that means is, per Dave's earlier comments, as we pursue our plan to get to 10% of the market at pretty high growth rates of bookings, we have an ability to invest very consistently in the things that drive value at Roblox, which is engineering excellence, trust and safety and infrastructure and the developer community. And so while we had a real step function in margins this year, we delivered about two to three years' worth of margin improvement per our guidance in November 2023. We can continue to do that while making really significant investments.

[Mike Guthrie, CFO at Roblox]

And so from an operating standpoint that feels good to us as a leadership team and a real consistency in those investments to drive continue to drive growth with margin. Number two, I want to make sure that the fourth quarter we have clarity on two things. First would be bookings. In Q4 last year, we launched a new platform, which is PlayStation. We always want to launch new platforms.

[Mike Guthrie, CFO at Roblox]

We're excited to do that. And typically that grows the overall size of the market and is positive for the business. At the same time, we also had a significant update on Xbox. So console for us in October and November in particular was very strong and we lapped that in the fourth quarter. So just a little bit of clarity, we touched on a little bit of this in the letter.

[Mike Guthrie, CFO at Roblox]

In the fourth quarter, mobile and desktop bookings grew 26%. So very high growth in the things that were not lapping the difficult compares. For the entire for the month of December exclusively mobile and desktop bookings were 27% growth and prepaid and console were 22% growth. So prepaid and console, we lapped the launch of PlayStation, the October and November impacts there. We also lap a large prepaid card purchase in November.

[Mike Guthrie, CFO at Roblox]

But by December and as we exited the quarter and into the first quarter, very high growth in mobile and desktop, which has persisted across Q3 and Q4 and prepaid and console then started to pick back up into the 20% range. So we had a very healthy exit to the growth rate once you take into consideration lapping PlayStation and again that continued into the first quarter. So that's number two. Number three, just as it relates to consensus and our guidance, we just want to remind everybody in the fourth quarter, we have over the course of a year, let's just say, working capital is not a big doesn't really have a big impact on the business. But in Q4 and Q1 working capital actually has a very large impact on the business.

[Mike Guthrie, CFO at Roblox]

So there's a in your model, there's a difference between your EBITDA and our cash from operations that is working capital. In Q4, negative working capital, so there's a big spread. And then in Q1, positive working capital as we collect all the activity that happened in Q4, especially around the holidays. So just vis a vis your consensus, which is at the high end of our implied guidance, I think we're about 9% ahead of your EBITDA numbers. So I just want to make sure everybody understands the working capital flow and how that works.

[Mike Guthrie, CFO at Roblox]

And you're going to see a lot of, of course, that cash flow is going to come back into the company in the first quarter. So those are my three comments just to put everything into context. And now we'll love to take your questions.

[Operator]

Your first question comes from the line of Omar DeSouki with Bank of America. Please go ahead.

[Omar Dessouky, Analyst at Bank of America]

Hey, team. Thanks for taking my question here. I wanted to maybe

[Omar Dessouky, Analyst at Bank of America]

get

[Omar Dessouky, Analyst at Bank of America]

help us think of a framework of how you're going to get to 10% of the video game market. So, if we were to think about the existing video game markets in tiers, okay, obviously there's mobile and PC console, but within, for example, PC console, there are different levels of production value like AAA, AA, AA and indie. Which of those tiers of production value would you expect Roblox developers to start to emulate, so that you could potentially take share? And the reason I say take share is because it's well known that the video game market hasn't been growing very rapidly, whereas you're growing 20%. So it would seem that Roblox developers would potentially take share from the existing video game market.

[Omar Dessouky, Analyst at Bank of America]

Just help us think about the future direction of content that's going

[Omar Dessouky, Analyst at Bank of America]

to help you get to that 10%.

[David Baszucki, CEO at Roblox]

Hey, Omar, thanks for highlighting this. And let's take a step back. I want to share how we have been thinking of it and there's various lenses on this. First off, when we think about people creating three d games and experiences and you mentioned taking share. We actually just want many of them creating on Roblox.

[David Baszucki, CEO at Roblox]

They're creating in other places and so this isn't necessarily taking from them. We're seeing more and more licensed platforms once again like NFL Universe or SpongeBob, tower descents from Paramount just showing up on our platform side by side the rest of the game industry. We financially the way we see this going is an internal model genre by genre, and the size of each of those genres and our penetration in each genre leading to ultimately 10% of the market running on our platform. I'll give you one example. Battle Royale on low end mobile is a good a sizable chunk of this and we could reel off the top four to five Battle Royales around the world.

[David Baszucki, CEO at Roblox]

We shared at RDC and we continue to share that we're driving the technical innovation to support Battle Royale on a low end two gigabyte RAM Android device in a very difficult networking market like India with no compromise. We believe a Battle Royale ultimately on Roblox needs to launch faster, run at higher fidelity and work better in a bad networking condition than a traditionally pre compiled monolithic Battle Royale. So stay tuned on that. But simultaneously the architecture we're developing which is a three d streaming architecture very closely connected to the cloud also leads to the notion that that same Battle Royale that's running on two gigabyte Android should run on a high end gaming PC and stream higher quality assets with the exact same code base. So we are not going to compromise either on low end Android perf which is the mobile segment or the high end PC quality because cloud is going to be ultimately very important in dynamically adjusting the quality of these experiences.

[David Baszucki, CEO at Roblox]

And then I would say in the third segment, we are also starting to see even more puzzle type games on the platform. So we believe it's imminently important for us to make the technical breakthroughs that support which has traditionally been monolithically downloaded experiences in a three d streaming context without any compromise for quality. This is complemented by a roadmap on economics. You saw with paid access gains that's moving all the way up to 70% in certain situations. This is complemented by search and discovery to help bring these features forward.

[David Baszucki, CEO at Roblox]

And then I would say behind the scenes, you will see us working with high end developers who traditionally were, launched in other ways on the Roblox platform. So we're taking this very seriously. Internally, we are watching the metrics quarter by quarter, genre by genre to make this happen.

[Omar Dessouky, Analyst at Bank of America]

Well, great. Thanks for the comprehensive answer. I think that gives me a great clear direction for research here.

[Omar Dessouky, Analyst at Bank of America]

Appreciate it.

[David Baszucki, CEO at Roblox]

Thank you, Omar.

[Operator]

We'll go next to Cory Carpenter with JPMorgan. Please go ahead.

[Cory Carpenter, Internet Equity Research at JP Morgan]

Thanks. Good morning. Wanted to ask on advertising. You didn't touch on it much in your prepared remarks. We talked about twenty twenty five initiatives.

[Cory Carpenter, Internet Equity Research at JP Morgan]

So hoping you could just maybe frame your plans for the ad business this year and any help you can give on quantifying the ad contribution you're expecting in 2025 that's embedded in your outlook? Thank you.

[David Baszucki, CEO at Roblox]

I'll go first. We shared that when we feel advertising is big enough, we'll break it out. I'll let Mike talk about it. We're just in the middle of adding to our portfolio of ad products, including streaming video ads and possibly user initiated video. We are already building and increasing business on sponsored tiles on our homepage.

[David Baszucki, CEO at Roblox]

We are live with shopping ads. I want to highlight the potential here with five of the top 10 movie releases, using Roblox to boost engagement and understand, what's coming. Of course, we won't say whether that's correlation or causality, but we do think it's really exciting. So I do feel we're on a great track. The team, we've supplemented with amazing talent.

[David Baszucki, CEO at Roblox]

I think it's simply we're not ready to break it out yet, Mike.

[Mike Guthrie, CFO at Roblox]

Correct. And there's very little in the numbers that we produce today in terms of our guidance for '25.

[Cory Carpenter, Internet Equity Research at JP Morgan]

Okay. Helpful. Thank you.

[Operator]

Your next question comes from the line of Clark Lempin with BTIG. Please go ahead.

[Clark Lampen, Managing Director at BTIG]

Good morning. Thanks for taking the questions. I have two. Dave, on personalization and discovery, you guys have obviously been very successful in rolling this out over the course of the year and it's objectively been accretive to the player experience, your business, bookings growth. Have you seen as a consequence of this, though, any signs from a developer standpoint that the community is maybe being taxed a little bit by a higher live services burden?

[Clark Lampen, Managing Director at BTIG]

I guess said differently, is there any way for you to monitor and potentially avoid burnout as the pace of content creation potentially picks up? Second question, Mike, as we're thinking about rate of margin improvement that's sort of baked in and what's forecasted for 2025, Is there any way of framing for us how much of the improvement might be a result of direct cost leverage this year rather than OpEx leverage since you didn't hire a whole lot in 2024? I would imagine that that's going to pick up in 2025? Thank you both.

[David Baszucki, CEO at Roblox]

Yes. I'll start on search and discovery. First, I want to highlight a couple of things. The creator community who we meet with personally and talk about this a lot really values transparency in our search and discovery algorithms so they can see what we're rewarding. We've made a commitment at RDC to be hyper transparent in that and stay tuned because we believe we can be very transparent in what we're rewarding for organic discovery as well as how we run organic search.

[David Baszucki, CEO at Roblox]

That's complemented with LiveOps where we do at times feature updates. I want to highlight, we encourage all Roblox creators to iterate and make many small updates rather than giant monolithic ones. It's the way we build Roblox. We're shipping many times a day. We ship safety advancements 40 times a year.

[David Baszucki, CEO at Roblox]

And so I don't actually think we're encouraging burnout. I think we're encouraging a healthy way to do engineering.

[Mike Guthrie, CFO at Roblox]

Clark, I'm going

[Mike Guthrie, CFO at Roblox]

to answer your question. I want to make sure I get it right. So, this year coming up, as I said earlier in my opening comments, we're in a position now where growth and expenses can track much more closely with growth in the top line because we've had such a step up in margins. This year based on the top line growth that we expect, we can hire pretty aggressively vis a vis the last couple of years. We can add headcount costs in the mid to high teens and still have very good cost leverage this year over last year.

[Mike Guthrie, CFO at Roblox]

So that's number one. That's on the fixed cost side. Number two, Infotrust and Safety, we continue to drive down cost to serve and we still believe there's pretty significant amount of improvement that we can drive in that cost line. And so just those two, you were saying direct versus OpEx, they're both operating expenses, they're more fixed costs. That's how I think of it.

[Mike Guthrie, CFO at Roblox]

And then I just want to add and sort of embedded in what I said at the beginning, we have had variable costs in the business that have been our developer exchange and our cost of goods sold. And for quite a long time, we talked about the potential of unlocking operating leverage and cost of goods sold. We're still early in that journey, but differential pricing is certainly a first move towards that. And so while what you see in our guidance is driven really by hiring and IT and S, Infra Trust and Safety, operating leverage just investing at a slightly lower growth rate than what we expect in the top line. There is the possibility that we start to see some real operating leverage in COGS.

[Mike Guthrie, CFO at Roblox]

And that allows us to do a few things that we've talked about for years. One is sharing a little bit more of the developer community while sharing incremental margin and effectively with investors and in our on our P and L as we report cash flow. So that's why we really feel like we're in an enviable financial position. Did I answer your question?

[Clark Lampen, Managing Director at BTIG]

Yes, you did.

[Clark Lampen, Managing Director at BTIG]

I think the question was essentially gross margin leverage relative to OpEx. And it sounds like if I have it right, a lot of what you're modeling in here is OpEx leverage. You'll sort of wait and see whether there is COGS leverage over the course of the year or incremental COGS leverage. Is that correct?

[Mike Guthrie, CFO at Roblox]

Correct.

[Clark Lampen, Managing Director at BTIG]

Okay. Thank you.

[Operator]

Your next question comes from the line of Mackie Koss with Morgan Stanley. Please go ahead.

[Matthew Cost, Analyst at Morgan Stanley]

Great. Good morning, everyone. Thanks for taking the questions. The first one is just on the DAU trajectory. I think there was a slight step down from 3Q to 4Q.

[Matthew Cost, Analyst at Morgan Stanley]

It seemed to be across most of the regions. So what were the puts and takes in the DAU step down from 3Q to 4Q? Any regions to call out or content that drove that platform that's worth noting? And then just secondly, I think just building on Clark's question a little bit. As I understand it, I think there would be kind of some benefit to the amount of developer exchange fees going out to the developers, which means higher costs to Roblox as a result of differential pricing.

[Matthew Cost, Analyst at Morgan Stanley]

Over time, I would imagine as you get more consumers to shift to that payment model, that's a good guy for COGS. It probably is a good guy for your margins. But in year one, as you look at the guidance for 2025, is differential pricing good for gross margin this year or bad at that initial first twelve months? Thank you.

[David Baszucki, CEO at Roblox]

Hey, I'm going to start a picture on this and just share what you may be seeing hints of in our results over the next four to five years as we move to 10% of the gaming content space running through our platform. We want to move as much money as we can through to the developer community as part of it. It's great economics. It helps drive growth on the platform. You will see us relentlessly work on COGS as a percent of bookings, on personnel cost as a percent of bookings and infra trust and safety without compromising quality as a percent of bookings because what that leaves behind that is cash and what we can move to our developers.

[David Baszucki, CEO at Roblox]

So the more we drive this, the better. The move to rationalizing Robux pricing where we roughly correlate the amount of Robux given to the amount of raw cash we receive is great economic policy. It's really increased, the amount of money ultimately flowing through developers because it drives their cogs down a bit. And we've seen consumers respond in a rational way, in a way that has also contributed to growth. So, so on that side, I would hope, at the big picture you would see DevEx as a percent of bookings.

[David Baszucki, CEO at Roblox]

Mike, you can comment just continue to slowly march upwards if we do our job right.

[Mike Guthrie, CFO at Roblox]

That's right. And that doesn't mean margins will go down at the same time. We're talking about efficiency in the cost structure that allows us to do both. The guidance implies that we're still in the 100 to 300 basis points range that we talked about back in late twenty twenty three. Obviously, this year 2024, the number was quite a bit higher than that.

[Mike Guthrie, CFO at Roblox]

But embedded in that to get specific is primarily the operating expenses that we talked about. Another way of saying that is we're sort of carefully watching COGS leverage. We're optimistic about COGS leverage. We're not modeling it in and guiding to it today. But it's exciting to have that lever.

[Mike Guthrie, CFO at Roblox]

We haven't had that in the past. On the user side, in Q4, again, lapping the launch of PlayStation and a pretty significant step up in Xbox is a platform that we saw a lot of sign up activity. We saw a lot of new DAUs. And so we have to really lap that coming into January into Q1 of twenty twenty five. In addition, just as a call out specifically, we talked about a little bit in the letter, Eastern Europe growth was quite a bit slower on DAUs driven primarily by Turkey, which is the first full quarter where Turkey has been off.

[Mike Guthrie, CFO at Roblox]

And if you look at the growth in users in Europe versus the bookings growth in Europe, it's pretty significantly different. So where we have had a hit on DAUs in Eastern Europe, it is fortunately a part of the world where the economic impact is just not nearly as large as the impact on users. So we're going to work hard to be live and compliant around the world. We think that will ultimately help user growth to grow, but overall healthy user growth in the rest of the world and certainly we're seeing strong engagement and strong monetization which turns into strong bookings growth.

[David Baszucki, CEO at Roblox]

And once again, I want to just highlight how little we are penetrated in India right now with north of 50 DAU growth, which you'll see complementing as that market grows.

[Matthew Cost, Analyst at Morgan Stanley]

Got it. Thanks a lot guys.

[Operator]

We'll move next to Ken Murawski with Wells Fargo. Please go ahead.

[Ken Gawrelski, Analyst at Wells Fargo]

Thank you. Good morning. Two if I may. First one on what are you hearing from developers about the cost and the time to develop new game features with all the AI powered tools that you discussed at length on this call? How should we think about the adoption of and how should we think about the adoption rates of these tools?

[Ken Gawrelski, Analyst at Wells Fargo]

Is it significant already? Is it very early days? And do you expect an acceleration there? And is the greater impact on the overall Roblox ecosystem better earnings for developers or enhanced game development or is it really both? Maybe that's my first one.

[Ken Gawrelski, Analyst at Wells Fargo]

And the second one is more just maybe Mike if you could walk us through kind of the puts and takes as we think about the first quarter guidance. You talked about in the letter some of the dynamics between early in the quarter or later in the quarter. But can you just talk about it maybe a bit more extensively just so we understand the different dynamics in that 1Q bookings guide? Thank you.

[David Baszucki, CEO at Roblox]

Yes. Hey, first I'll start with developers and their economics. And I do want to highlight people are taking note of what we believe is the economic opportunity. A very large property on Roblox Brookhaven was just acquired, by a very, I think thoughtful and smart kind of property owner. So I want to highlight that.

[David Baszucki, CEO at Roblox]

Hey, this is I think these all multiply together. If we achieve our goal, which we believe we will of routing 10% of the gaming market content ecosystem, That in itself multiplies to 4x roughly the money flowing through developers. I just said about fifteen minutes ago, we would like to increase the share of bookings flowing to our creators as well. So those two things multiply together. And then I think the triple whammy is we are already in a position where many top experiences created on Roblox are much more efficient than the traditional gaming space.

[David Baszucki, CEO at Roblox]

And this is because our cloud is integrated with our engine, our auto translation is integrated with our engine. Creators who launch and share experiences like Brookhaven, which is arguably, one of the largest avatar simulation experiences in the world, much bigger than most standalone avatar simulation experiences, is really was created and run by a very, very small team and was running around the world translated on every device. So it's really is a triple whammy. AI adds to that on top of that. And so it's really a fourth multiplier.

[David Baszucki, CEO at Roblox]

We're seeing more and more creators adopt our assistant in studio. We're going to see more and more of that. I do want to say that we're optimistic that the overall market for jobs in the experience creation space, if anything, we believe will grow not shrink with AI. We're optimistic about this. We think, for example, I'm going to Dubai next week to talk about the opportunity for really a creation economy there because the jobs supported by our platform are going to continue to grow.

[David Baszucki, CEO at Roblox]

So I think it's actually a quadruple whammy with AI acceleration. Over to Mike.

[Mike Guthrie, CFO at Roblox]

Okay. Ken, what is embedded in guidance for the first quarter? So the bookings guidance is about 22% to 24%, twenty four point five % top line bookings growth. That's informed by really the exit rate of Q4 and what we saw across the quarter as we adjust for the launch of PlayStation and some of the other things that we've already talked about. On the margin side, continued growth and what's implied here is again better than the 100 to 300 basis points that we've come to talk about.

[Mike Guthrie, CFO at Roblox]

It's more like 300 to a little over 400 basis points improvement. So we're still seeing pretty high improvement in the margin guidance that's implied here. What else is implied for the quarter and then for the full year? January, which of course now we've seen is our expectation is that's probably the highest growth rate of months to the quarter. The comps are a little bit easier, of course, early in the quarter as you all remember from last year, it gets tougher in March because we do lap Easter this year.

[Mike Guthrie, CFO at Roblox]

So Easter last year was in Q1. So we'll lap that in March and then we'll have the benefit of having Easter in April and not comping against April in Q2. So overall, because the exit rates are really good, and just what we've seen in January has been very strong. That is embedded in the guidance. I also looked Ken specifically, I looked at your model, a few days ago and I feel like seasonally you've got it right because during the course of the year, our current expectation is growth rates in the first half of the year will be higher than in the second half of the year, primarily because of Q3.

[Mike Guthrie, CFO at Roblox]

We just had such a strong third quarter, so we're going to lap that. Now, we knew when we printed Q3 that we were going to lap Q3 '12 months from now. So we're working on a lot of initiatives that we hope will allow us to drive growth above and beyond what sort of embedded in the full year guidance and the Q1 guidance. But that'll be the toughest quarter to comp against for sure. We're optimistic we can do a good job there and for the overall year growth we're optimistic.

[Mike Guthrie, CFO at Roblox]

And right now I think highest growth in Q1, very good growth in Q2 and Q4 and Q3 is the quarter that we have to lap a very large number and we're ready for the challenge.

[Ken Gawrelski, Analyst at Wells Fargo]

Thank you.

[Operator]

We have time for one more question from Brian Stitts with BMO Capital Markets. Please go ahead.

[Brian Pitz, Managing Director and Senior Analyst at BMO Capital Markets]

Great. Thank you. Two questions, please. One, any insights into how much contribution of bookings is expected from paid access gains this year and thoughts on how they may potentially be cannibalistic to your core business? And then two, given the biggest question and pushback that we still receive, which is around the age up thesis on the platform, maybe an update on your thoughts on latest initiatives there in terms of driving the development of more mid core, hardcore gaming content?

[Brian Pitz, Managing Director and Senior Analyst at BMO Capital Markets]

And could an acquisition actually make the most sense to accelerate the development move in that direction? Thank you.

[David Baszucki, CEO at Roblox]

Wow. Hey, we don't see your thesis in our numbers. So I do want to highlight this summer, for example, we shared the growth rate of our over 13 and all over universities in The United States, people are playing dress to impress while they were in class. So we see continued growth in 13 and up. It's growing very, very rapidly and we're seeing more and more properties like NFL Universe that are appealing to older experiences.

[David Baszucki, CEO at Roblox]

On the paid access side, there is a pipeline of creations right now getting lined up to launch on paid access. We don't see this once again as cannibalistic. We see the overall $187,000,000,000 gaming content market in the world, including freemium experiences, including paid access experiences, including experiences that monetize by advertising and we're offering world class systems that cover all of these. It's actually inconceivable that we would go after 10% of the world gaming market without a wide range of economic opportunity. So we see it as accretive, not as cannibalistic.

[Mike Guthrie, CFO at Roblox]

Hey, Brian. Just one last comment. I appreciate the question and what you described as pushback. And that's great because we're now seven at least for me seven years into people pushing back on aging up and we just continue to age up. So my prediction will be in year eight we will incredible creator community will build content based on the technology that we're producing that will be increasingly attractive to older users.

[Mike Guthrie, CFO at Roblox]

And twelve months from now, we'll have the exact same question. But I appreciate you bringing it up.

[David Baszucki, CEO at Roblox]

Thank you. Great question.

[Stefanie Notaney, Senior Director of Financial & Corporate Communications at Roblox]

Well, thank you everyone for joining us today. And I will hand it off to our operator, John, to close out the call.

[Operator]

That concludes today's conference call. Thank you for your participation and you may now disconnect.

Participants

Executives

• Stefanie Notaney, Senior Director of Financial & Corporate Communications
• David Baszucki, CEO
• Mike Guthrie, CFO

Analysts

• Omar Dessouky, Analyst at Bank of America
• Cory Carpenter, Internet Equity Research at JP Morgan
• Clark Lampen, Managing Director at BTIG
• Matthew Cost, Analyst at Morgan Stanley
• Ken Gawrelski, Analyst at Wells Fargo
• Brian Pitz, Managing Director and Senior Analyst at BMO Capital Markets