Roblox proves that tricks aren’t just for kids

Key Points

• Videogame platform developer Roblox shares surged 12% on solid Q3 2023 metrics.
• Roblox grew its 17 to 24 age group users by 27%, helped by adding Meta Quest and Sony PlayStation 5 to its list of growing user access devices.
• Roblox will start offering forward guidance in 2024.

3D video game and development platform operator Roblox Co. NYSE: RBLX shares surged 11% on impressive Q3 2023 earnings results. The company is still losing money in the computer and technology sector, but growth has shifted back into acceleration mode. The gaming platform still appeals to the youth, as evidenced by 67% of its users being under 16. Roblox has 214 million monthly active users (MAUs) and 70.2 million daily active users (DAUs).

Targeting an older user base

Roblox has concentrated on expanding its access and appeal to an older adult audience by creating more mature content for the 17 and older crowd, complete with more realistic graphics and themes. The 17 to 24 age group is the fastest growing demographic of Roblox users at 27% versus 22% for the 13 to 16-year age group. The majority of its content creators are over 18. The company expanded access to Meta Platforms Inc. NASDAQ: META Quest and the Sony Co. NYSE: SNE PlayStation 5, which have an older user base and 2 million and 15 million lifetime installs in October 2023. Older users have more control over their discretionary income than kids who use their parent's credit cards to buy Robux. This makes sense.

Is Roblox a metaverse?

The Roblox platform is a virtual world with its currency, Robux, enabling users to buy and sell virtual goods, build communities and engage with each other. It can almost be considered a metaverse, with the exception of interoperability and decentralization. Interoperability refers to being able to move around digital assets to other metaverses. Decentralization refers to not having the virtual world controlled by a single entity. However, it may develop into one in the future. It is a leader in the development of the metaverse.

The Roblox economy

As with most videogame publishers and software companies, revenue recognition can be confusing, especially with prepaid subscriptions, microtransactions and virtual item purchases. Roblox uses three terms to describe its sales: revenue, deferred revenue and bookings. While the Roblox platform is free, access can be severely limited unless you gain membership privileges by purchasing Robux, the currency used to enjoy more access and conduct transactions.

Durable and consumable virtual items

In the digital economy of video game microtransactions in the virtual world, there are two types of virtual items: durable and consumable. Durable items are those you purchase and can continue to use. Durable items on Roblox include digital clothing, vehicles, avatars, pets, tools, weapons and gadgets. These can be used over and over again. Consumable items include power-ups, food, ammunition, coins and gems. These items can only be used once. 

Distinguishing between revenue recognition  

Revenue is recognized as the amount of money Roblox generates from its customers during a specified period. It is comprised of transactions that have been completed and products and services delivered to the customers. When a user purchases consumable items, that revenue is recognized immediately. When a user purchases a durable item, that revenue is recognized throughout the lifetime of the paying member. For example, if a user buys a durable item like a vehicle for $12 or 1200 Robux, the company will recognize only $1 monthly as revenue for the next 12 months. If a user buys $3 worth of virtual food, that revenue is recognized immediately.

Deferred revenue

Deferred revenues are money received but not recognized because the product or service will be delivered in the future. If a Roblox user purchases a monthly subscription, the company will defer recognizing the revenue until the end of the month after the service has been delivered. Durable virtual items are also considered deferred revenues. 

Bookings

Bookings are arguably the most important figure since they provide a heads-up of future revenues. To participate in the Roblox economy, users must purchase Robux currency. If a user purchases 3,000 Robux for $30 on the platform or through a prepaid card, that money is recognized as $30 in bookings. The funds get recognized as GAAP revenue when the user spends Robux on microtransactions for products or services.

Moving in the Right Direction

On November 8, 2023, Roblox released its Q3 2023 earnings report ending September 2023. The company reported an EPS loss of 45 cents, beating consensus analyst estimates of 49 cents by 4 cents. Roblox generated $81 million on a covenant-adjusted EBITDA basis. Net loss attributable to shareholders was $277 million, including $220 million in stock-based compensation, up 36% YoY. Bookings grew 20% YoY to $839.45 million, beating analyst expectations by $19.05 million. Revenues rose 38% YoY to $713.2 million.

Robust Q3 Metrics

Average daily active users (DAUs) rose 20% YoY to 70.2 million. Average monthly unique payers rose 14% to 14.7 million. Average booking per monthly unique payer rose 5% to $19.02. Hours engaged on the platform rose 20% YoY to 16 billion. Average bookings per daily user were flat at $11.96. Average bookings per DAUS for the US and Canada was $33.53, Europe was $8.38, APAC was $5.24, and ROW was $3.63. Cash flow from operations was $112 million, and $59 million free cash flow. The company ended the quarter with $3.1 billion in total cash and investments.

CEO Insights

Roblox CEO David Baszuki confirmed their ambition to grow its community to one billion users. The company introduced the Roblox Connect platform, an open source set of APIs enabling creators to embed communications capabilities into their experience, including mobile. The company is incorporating more artificial intelligence (AI) up and down the stack, including moderation pipelines, which will help improve quality and costs.

Baszuki also addressed normalization since the pandemic after investing heavily and aggressively to hyper-grow the platform at scale. He noted that things are settling down, "It should be much more rational and reasonable and predictable growth. And that allows us to invest and be more efficient throughout the income statement and the balance sheet."

Roblox analyst ratings and price targets are at MarketBeat. Roblox peers and competitor stocks can be found with the MarketBeat stock screener.

Daily inverse head and shoulders breakout  

The daily candlestick chart on RBLX formed an inverse head and shoulders breakout pattern. The left shoulder formed when RBLX dumped to $32.52 gap down on Q2 2023 earnings on August 9, 2023. Shares continued to sell off to $26.25 before bouncing to $29.58. The head formed on the sell-off to the low of $24.88 on September 25, 2023. RBLX rallied to $31.96 on October 12, 2023, and fell to $29.80 to form the right shoulder.

This formed an ascending neckline that triggered a breakout on the $34.05 break on November 8, 2023, preceding its Q3 2023 earnings report. RBLX gapped the following day's peak at $42.20 before selling back down toward the $37.59 gap-fill level. The weekly relative strength index (RSI) surged through the oversold 70-band and is stalled at that level. Pullback support levels are at $35.70, $34.05 neckline breakout level, $32.52 gap fill down and $31.17.