Roblox Disappoints The Market With Stunning Report

Roblox, When Great Isn't Good Enough

Roblox NYSE: RBLX has been a fairly high-profile company this year. The company operates a gaming platform that services both developers and gamers that it calls the metaverse. The metaverse empowers the use of virtual reality by connecting media of all varieties with end-market users. Traditionally, the company has been focused on the youth group and gaming and done very well but it is now actively expanding its footprint outside of traditional gaming and age verticals. The company has inked deals with most of the major entertainment companies over the past six months to a year and several brands have already launched an offering. One that stands out is Stranger Things: Starcourt Mall, which allows users to role play and play games within Netflix popular Stranger Things universe.

Roblox Growth Continues Unfettered

Roblox had a great quarter that was really marred by only one thing and that is the analyst’s expectations. The analysts had been expecting more than what was delivered so it makes the $454.1 million in revenue look bad. We, however, choose to focus on the fact revenue is up 17% sequentially, 127% from last year, and appears to be accelerating into the third quarter. In terms of users, the company reports daily active users at 43.2 million or up 29% year-over-year and at a record high. More importantly, growth in both of the company’s two high-growth segments is leading the company higher. Daily active users outside of the US/Canada grew by 42% while daily active users above the age of 13 years old grew by 46%. 

Revenue was also boosted by engagement. The company reports the number of hours per active user grew by 13% system-wide with notable strength once again in the regions outside of North America and above the age of 13. The increase in daily active users helped to drive a small increase and bookings per DAU as well. Bookings per DAU grew to $15.41 for a total of $665.50 million or up 34.7% over last year. 

The bad news is that bookings missed the consensus by 2.3% and have shares moving lower in early market action. Moving down to the earnings, the results were also a little disappointing but there is a mitigating factor. While the company’s net loss doubled from last year and GAAP earnings of -$0.25 missed the consensus by $0.15 much of the loss can be attributed to the company's growth and efforts to stimulate more growth.

“In the quarter ending June 30, 2021, cash from operations and free cash flow continued at record levels. The third quarter is off to a strong start with our highest levels of users and engagement to date,” said Michael Guthrie, Chief Financial Officer of Roblox. “We will continue to invest in our developer community, hire top engineering talent, and build out the infrastructure required to scale Roblox globally.”

Turning to the guidance, Roblox did not give specific guidance for the quarter but it did give an update on quarter-to-date operations.  The company reports that daily active users, engagement, and bookings are all up more than 20% year-over-year and accelerating from the prior quarter. In our view, the results and guidance set the company up to exceed the full-year consensus as it is and the company's strongest quarters are still ahead. If we assume that triple-digit year-over-year increases in revenue continue into the fourth quarter, the fourth quarter revenue alone could be worth 50% of the full-year consensus estimate.

The Technical Outlook: Roblox Moves lower Within Its Range

Shares of Roblox have been in a trading range since the IPO and recently moved back to the center of that range. The Q2 results and outlook for the third quarter have shares moving lower in premarket action and possibly heading back to the bottom of the range. There is, however, a potential for support to kick in all the way down to the  $72 level. If that level holds as the support we would expect to see price action move sideways into the third quarter and fourth quarter reporting periods. If not, shares of Roblox could retreat all the way down to the $65 level before finding their bottom. In either case, we still view this company as a solid play on gaming and roleplaying applications for business and industry.