Roblox surges past US$1 billion revenue for Q4 - their highest ever. 📈  Last week in their fourth quarter (Q4) and full year earnings, immersive gaming experience company Roblox (RBLX) reported ‘better than expected’ results. The company reported revenue, which the company calls ‘bookings’, to US$1.13 billion vs an expected US$1.08, according to data from LSEG. Losses moved from an expected US55c to US52c. 

Full year revenue also beat LSEG estimates, with revenue climbing to US$3.52 billion in 2023, versus the expected US$3.41 billion, an increase of 3.22% higher than estimates. Meanwhile, actual losses were at US$1.87 versus an expected US$1.91. The positive revenue results shot Roblox shares up 10% last Wednesday with today’s company market cap sitting at US$27.565 billion, slightly down on last week’s peak.

Roblox reported 18% growth in monthly unique payers. MUPs are members who use Roblox Premium, totalling around 15.9 million people. The company’s capital expenditure dropped nearly 60% between Q4 2022 to the same quarter in 2023, down from US$157.2 million to US$65.2 million.

Yet despite optimistic reporting and Roblox founder and CEO David Baszucki telling shareholders ‘we believe we can maintain 20%+ year-over-year topline growth through 2027’, and stating their recent major investment drive means they can ‘increase margins by 100-300 basis points per year’, it’s not all coming up roses at Roblox. In late 2023, some parents filed a class-action lawsuit against Roblox for allegedly allowing ‘sexual content to reach children’. So what is Roblox, how does it make money and why does it attract so many Gen Zs?

What is Roblox?

One of the world’s largest gaming companies doesn’t actually create games. 🖲️ Roblox is an online multi-genre experience creation platform where their community of users - not Roblox - can use the platform’s Studio tools to create and share their own games, and play games created by others. According to Roblox, their user-generated ‘human co-experience platform’ fosters innovation, learning and friendships in 15 languages across 180 countries.

How large is the Roblox community?

The participation age; it’s how we game now. 👩‍💻 Roblox’s aim for 1 billion users may sound like a steep hill to climb. But the platform’s average daily active users (DAUs) for their 2023 fourth quarter rose 22% from 2022, to 71.5 million users, which Roblox reported was ‘driven by growth among older users and users in international markets’. Monthly unique players (MUPs) grew 18% in Q4 to 15.9 million, and ‘average bookings’ - aka revenue - for each paying user climbed 6%, reaching an ‘all-time high’ of US$23.65 - 5% higher than their pandemic peak in the final quarter of 2020.

At 20-years-young this March, is Roblox just getting started? 🎈Baszucki is confident they’ll hit their 1 billion target sooner rather than later, last week saying, ‘We enter 2024 with even more conviction of being able to achieve our long-term goal of attracting over 1 billion daily active users with optimism and civility’.

The Roblox community spends billions of hours using the platform - playing, chatting and personalising their avatar - which in Q4 2023 added up to 15.5 billion player hours - or around 2.4 hours per day. This is slightly down from their third quarter, where they reported 16 billion hours, but is up 21% year-over-year, since Q4 2022. 

How does Roblox make money?

Turning Robux into real bucks. 💰 Motley Fool’s Jon Quast said Roblox’s user-generated economy, high-margin business model is ‘similar’ to YouTube (GOOGL, GOOG) and Etsy (ETSY), adding:

‘Almost everything on Roblox's platform is generated by users - that is, independent developers and creators. The company simply provides these people with the software tools they need to build on the Roblox platform. The developers and creators handle the rest.’ - Jon Quast, Motley Fool

Around 3 million Roblox community developers have created more than 5.5 million active experiences on mobile and desktop, as well as consoles and VR headsets, including Sony PlayStation (SONY) and Meta Quest (META). And when creators generate income, Roblox’s revenue grows. Baszucki signed off last week’s shareholder letter connecting the dots, saying: 

‘We believe the amount of high quality content on Roblox will continue to grow; more users will become payers and payers will generally spend more as time goes on; and we will benefit from the growth of both Meta Quest and Sony PlayStation.’ - Roblox founder and CEO David Baszucki

Hitching the Roblox wagon to big console makers may yet be a smart move according to Reuters: 

‘In a positive sign for the gaming industry, the global video game market is anticipated to grow 2.8% this year, as it expects robust sales of Microsoft's Xbox and Sony's PlayStation 5 consoles, according to research firm NewZoo.’ - Harshita Mary Varghese, Reuters

Roblox’s community of developers earn Roblox’s virtual currency Robux by creating experiences that can include:

• In-experience purchases - subscriptions, products, special access passes, and private servers for just a few users with subscription fee access
• Engagement-based payouts - automatic engagement-based payout (EBP) calculated from the share of time a Roblox Premium subscriber spends in a developers’ experience or game
• Immersive ads - a shared revenue model based on impressions and teleports from native ads imbedded in an experience or game 
• Creating, selling, and reselling avatar Marketplace items - virtual clothing and accessories, sponsored items and merch, and K Pop make-up, sassy comments to your-uncle-dancing-at-a-party head bop
• Creating and selling Studio plugins - selling new functions which can be added to Roblox Studio

Developers who participate in Roblox DevEx (the Developer Exchange programme) are able to cash out, which by Q3 2023 had seen 11,000 developers’ convert Robux to earn more than US$1.1 billion. 

Robux is also available as gift cards purchased in-app, or on Amazon (AMZN) and Best Buy (BBY). Gift cards come with extras like virtual snowboards for virtual snow shredding.🏂

How many brands are on Roblox?

Roblox told Digiday that by the end of September 2023, there had been 240 branded activations on the platform. This included integrated experiences, like collaborations between teen-created Badimo studio on Roblox with Hasbro’s (HAS) NERF guns, and with NASCAR, and company branded worlds. Walmart (WMT), for example, aimed to attract younger shoppers by launching Walmart Land in September 2022, while iHeartMedia’s (IHRT) iHeartLand took real life events virtual, such as last year’s Flo Rida Roblox concert.

Roblox indicated that increasing the number of brand experiences on the platform is a future focus, last week telling shareholders, ‘We expect to scale our brand-related microtransaction and advertising business over time as more companies invest in building presence on Roblox’.

Gen Z loves Roblox and this could be why

Roblox users are young. 👧 While some keen Millennials became Roblox users as early as 2004 - like Baszucki’s son Matt who now works at the company - today around 60% of Roblox users are aged under 16-years-old, while the fastest growing demographic are aged 17-24 years old. 

Despite Baszucki hinting at future grown-up experiences including virtual dating, Roblox third quarter data showed that 42.3% (29.7 million) of their daily active users were under 13 years old, with 51% male, 40% female and 9% unknown.

Fashion plays a big game on Roblox. 🧥 In 2022, PVH (PVH) brand Tommy Hilfiger’s real life New York Fashion Week runway show’s models walked simultaneously with Roblox avatars strutting on the Tommy Play metaverse. And Tiltlabs said last year ‘Roblox is pioneering the future of fashion by fusing technology and creativity’. 

In November 2023, Roblox released their Digital Expression, Fashion & Beauty Trends Report, which revealed how fashion is core to metaverse self expression. Data indicated users updated their avatars 165 billion times, buying 1.6 billion digital fashion items and accessories. A survey of 1,500 US and UK Gen Z Roblox users revealed:

• 56% say styling their avatar is more important to them than styling themselves in the physical world
• For older Gen Z aged 22-26, 64% say that, given a choice, dressing up their avatar would be more important than dressing up in the physical world
• 84% of Gen Z respondents say digital fashion is at least somewhat important for them
• 85% think the importance of digital fashion has grown at least some over the past year
• More than half (53%) think it’s grown a lot.

The most popular games in Roblox exceed 30 billion visits and with a user-generated economy the foundation of Roblox, as users continue to grow, the company expects to grow alongside them.

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