Roblox Posts Strong Q4 Earnings, Showing Impressive Booking Growth

Roblox Stock at a Glance

Current Morningstar Fair Value Estimate: $65

Roblox Stock Star Rating: 4 Stars

Economic Moat Rating: Narrow

Moat Trend Rating: Stable

Roblox Earnings Update

Roblox RBLX ended a challenging 2022 on a strong note as the firm once again posted strong underlying metrics. Global daily active users came in at 58.8 million, flat versus last quarter and up from 49.5 million a year ago. Roblox continued to improve its reach with older gamers, as 55.1% of users were over the age of 13 versus 51.7% a year ago.

On the negative side, the firm posted a slight free cash flow loss for 2022, its first full-year loss since the firm started to disclose financial. The loss was largely due to much higher capital spending on infrastructure to support the platform’s user growth both in the U.S. and aboard. While management projects a significant 25%-35% drop in infrastructure spending in 2023, we still project that capital spending will remain elevated versus pre-2022 levels. We are maintaining our $65 fair value estimate.

Bookings improved 17% versus last year to $899 million as the platform is expanding on its pandemic-swollen customer base. Quarterly bookings were larger than in all of 2019 ($694 million) for the second quarter in row. Engagement also jumped to over 12.8 billion hours of use, up 18% versus a year ago. This level of engagement implies each user was on the Roblox platform for over 217 hours for the quarter (2.4 hours per day) versus 202 hours (2.2 hours per day) a year ago.

Profitability continued to decline but at much lower pace than the third quarter, with the adjusted EBITDA margin dropping to 20.3% in the quarter from 21.8% last year due to the investment in headcount, spending on safety measures, and increased infrastructure spending. Developer exchange fees fell slightly to 20.3% of bookings from 20.7% a year ago. Infrastructure and safety spending jumped to 27.6% of bookings versus 22.5% last year. We now project that Roblox will spend a similar level of bookings on infrastructure and safety in 2023 as in 2022 (24%) to cope with user growth and higher voice chat adoption.