Roblox Corp Q1 FY2025 Earnings Call

Good morning. My name is Kathleen, and welcome to the Roblox First Quarter 2025 Earnings Conference Call. All lines are on mute. After the speakers' opening remarks, there will be a Q&A session. Thank you. I would now like to turn the call over to Stefanie Notaney. You may begin your conference.

Thank you, Kathleen. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q1 2025 results. With me today are Roblox Co-Founder and CEO, David Baszucki; 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. 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. Reconciliations between GAAP and non-GAAP measures can be found in our press release and supplemental slides. With that, I'll turn the call over to Dave.

Hey, thank you and good morning and welcome today. I want to share our results and highlight surpassing our guidance that we provided in our Q4 earnings call and also surpassing what we shared with you on our 2023 Investor Day goals. So let's dive in first with some numbers that are in our letter and then I'll share some more commentary as well. We saw high growth rates in many, if not all, of our operating metrics. Q1 revenue was $1.035 billion, that was up 29% year-on-year and ahead of our guidance of $990 million to $1.015 billion. Our Q1 bookings were $1.207 billion, that was up 31% year-on-year and that was ahead of the high end of our guidance, which was $1.125 billion to $1.15 billion. Q1 DAUs, 97.8 million, just shy of 100 million DAUs, up 26% year-on-year. And let's dive into a couple of the areas we've been talking about growing ever since our S1. First, U.S. and Canada still growing with solid DAU growth of 22%. APAC 40%. Japan, one of the largest gaming markets, growing 48% year-on-year, and India growing 77% year-on-year. We'll talk a bit about some of the performance, things we're doing on our app and ecosystem to support that. And on demographics, there's a very large opportunity for us over 13. 13 and up DAUs grew at 36% year-on-year. Now our DAUs are at 62% over 13. On hours, we hit 21.7 billion hours in Q1, that's up 30% year-on-year. Similar to the DAU trend, US-Canada 27%, APAC 40% 44% growth. Japan hours 50% year-on-year. India hours 78% year-on-year. 13 and up, 40% engagement growth year-on-year. And on the hours, very similar to DAU, 64% of the hours are in 13 and up. Continuing on our effort for thoughtful cost management, combined with our growth in Q1, our cash from operations was $443 million, that was up 86% year-on-year. That's 17% above the high end of our guidance, which was $380 million. Free cash flow in Q1 was $426 million, up 123%, 18% above the high end of our guidance. Just a little dive on some of the operational efficiencies we've been focusing on. Trust and safety was up 8% year-on-year, now 13% of revenue and 11% of bookings. I want to highlight that as we generate this operational efficiency, quality continues to go up. AI continues to be a key component of our efficiency there, and we're getting better on all fronts. AI-driven moderation has really driven the quality of our system, both for content safety and communication safety. Our personnel costs exclusive of stock-based compensation were $238 million. I want to highlight that these are growing slower than bookings and revenue at 23% of revenue and 20% of bookings and we're getting great leverage here and more leverage to come as we start to accelerate our coding efforts with AI. At the very same time where we would like to see more money moving in addition to our bottom line is creator earnings. DevEx was up 39% year-on-year in Q1 at $281 million, that's 27% of revenue, 23% of bookings. Our creators are on track for earnings over $1 billion this year for the first time ever, and I want to dive a bit into our investments on creator success and making them more successful. We highlighted a few of them. Differential Roblox pricing is really working. We shared some of the results here in our letter, and the creator community is really getting into this. Also, the inexperienced price optimization that we rolled out is giving us roughly 4% more in median creator earnings for creators who are participating. We're now at 35% of the top 100 experiences by spending using price optimization. We've seen some experiences do as well as a 15% improvement in earnings. When we started running this optimizer, prices went down, not up, which is a great testament for helping creators find more revenue in a really engagement and spending-positive way. Also, last week, regional pricing recommendations for game passes. This means that dynamically users in, for example, India or Brazil will see different prices than they would if they're in the UK. Our early testing is showing really promising results. We've only released it for game passes. Stay tuned, we're going to be adding in-game and avatar marketplace items. Going over to search and discovery, we want to highlight we really try to surface diversity in content in a fair way. This is really important because 90% of the traffic on Roblox originates from our homepage; so this is a really crucial channel. We said publicly and I would say not just on Roblox, but across the industry a belief and commitment to transparency in search and discovery algorithms. We have started outlining how retention, engagement, monetization, and intentional co-play are signals, and we've gone so far as to make these signals available as much as possible on our analytics dashboard for creators. So transparency, but giving feedback to creators so they can see how they are doing on these signals. We have a lot of creators of all sizes. We're trying to really drive search and discovery, not just with short-term optimization, but factoring long-term ecosystem health, which is really long-term enterprise value, into our search and discovery and recommendation algorithms. I'll share a few results. Our top 100 creators now earned an average of $6.7 million in the last 12 months. That's up 35% compared to the 12-month period ending March 31st, 2024. The top 100 creators earned over $1 million in the last 12 months. That means creator number 100, if we stack rank them by earnings over the top 12 months, creator number 100 earned over a million, so we have over 100 creators and studios supporting themselves, which is a great diversity of content. Discovery efforts are really helping. 24% of the top 100 experiences by spending in March were created in the last 12 months, which is amazing content velocity. Let's look at the top 10 creators. They earned $36 million on average in the last 12 months. That's up 28% versus the 12 months ended March 31st, 2024. We highlighted at RDC, the goal of having a Roblox Studio valued at $1 billion. We're seeing a lot of M&A action in the Roblox ecosystem. We're really proud that we're starting to see this kind of growth on the platform. We've shared publicly our goal and our belief that we will see 10% of the gaming market by consumer spending on the Roblox platform. We're growing faster than the gaming industry as a whole because we are a platform. We have a lot of headroom, and we've also shared that one of the tools we're going to use to do this is a real focus on genres and monitoring how we're doing in sports and racing, how we're doing in role-playing, how we're doing in battle genres and tracking these, and ensuring our platform from a technology point of view, search and discovery, and economics point of view can support awesome properties on that. I do want to share that in the three genres we're tracking, we've seen 69% year-on-year growth in these three genres. A couple of highlights about LiveOps: we're continuing to run LiveOps events. The most recent event was the Hunt Mega Edition, which had 10 finalists compete for $1 million in cash on April 4th at our headquarters. There were over 183 million visits to our hub during this event, and I would invite you to track down this event and watch it if you want. It's really fun to watch top pro gamers playing a fashion game like Dress To Impress competitively. So that's a fun highlight. On brands and ads, we announced our partnership with Google to help scale ads in formats like video and rewarded video. That integration is underway. We've also added additional tech and analytics providers and we continue to be really excited about creating an ecosystem where our creators have a wide range of monetization opportunities, including freemium, paid access, and ads. On brand activations, we're seeing more and more licensing type deals. NASCAR teamed up and did an activation with Driving Empire. The PGA Tour, Ultimate Golf Simulator launched, and we've seen European Soccer League show up, and I want to pronounce it right, Bundesliga. We've also seen people using our platform to reach out to young people. The Ad Council did a program with Love Your Mind to support teen mental health with resources from Headspace, and Alo Yoga also updated their experience focused on mental health and physical well-being. And I'll look around and see if we can announce there's a fun food activation on the platform. Yes, Chipotle is also activated with a repeat of their great partnership. On the AI side, we're live now with Cube 3D. We've built our foundational 3D model and trained it on over 1.5 million licensed and publicly available datasets in the Roblox ecosystem. We now have 1,500 experiences that are playing around and experimenting within experience generative 3D AI and this is just the beginning. We've shared publicly that we're moving forward to full 3D scene creation and we're also enabling what we call 4D generation over the next few quarters. 4D generation means not just creating props and static assets but creating native Roblox 3D immersive assets that are functional, that include embedded code. The example there is cars where you can walk up, open the door, hop in the car, drive the car, and get a heads-up instrument display on the car, as well as avatars and other interactive elements. We are live now with a beta of a text generation API in our system using a large language model. Creators can also use this directly in experience to power NPCs that are conversational AI characters. We're now over 300 Roblox-created machine learning models running in our system where we got that start way back four years ago with our first few models in trust and safety. We are running this with a focus on low latency real-time inference at low cost. Highlighting Safety and Civility, really our top priority since we started, we launched in April the latest iteration of our open-source AI voice classifier model, which is even more accurate and runs more efficiently. This is open source and I want to highlight a personal anecdote. When I now go to GDC, I bump into companies and I've heard them say, we're using your model, which is awesome. We added three powerful parental controls in April to give parents even more control over how their children spend time on Roblox. We joined the ROOST Consortium to contribute more of our open-source work to that for this industry-wide initiative to improve civility and safety. So a lot of great opportunities in front of us. And with that, I'll hand it over to Mike.

Thanks, Dave. Just a couple of comments on top line, cash flow, and margins. First thing that I found interesting in the numbers this quarter and particularly pleased with is that, a year ago our bookings and bookings growth was very concentrated at the top and a smaller number of experiences. We've dramatically expanded that this year over the last year. If you looked at experiences numbered 11 to 50 on our platform, a year ago, they were growing at about 5%. Now, year-over-year they're growing at over 100%. So that means more developers on the platform, and frankly, more genres, which is very important as we strive to get 10% of the gaming market. A great data point is just over 100 developers over the last 12 months have earned more than $1 million. So there are a lot of developers flourishing on the Roblox platform. Number two, we're very pleased with the performance in the U.S. and Canada. Last quarter, we had questions about growth rates there, but we had high growth in DAUs, very high growth in hours of engagement, and about 31% growth in bookings in the US and Canada – great performance in the first quarter. In Europe, when you look at the geographic output, you'll notice that DAUs and hours are growing more slowly than other regions overall, but bookings in Europe are growing just perfectly in line with the rest of the world. That's still because Turkey is still offline and that's affecting our DAUs and hours, but not having a big impact on bookings. So we're doing incredibly well and very consistently across the globe. On margins, we're pleased with the margin growth in the business and cash flow generation in the business. Since our Investor Day in late 2023, over the last six quarters, we have dramatically outperformed the notion of 100 to 300 basis point improvement. In this quarter, adjusting for a working capital benefit that we got in Q1, operating cash flow grew at over 70% year-over-year. Free cash flow more than doubled year-over-year to about $400 million for the quarter. At the same time, we are hiring and retaining great people where we only diluted the business by about 2.2% year-over-year, meaning our per-share metrics are very strong. We believe that's great for investors. So overall, the financials look great. The balance sheet is incredibly strong. We have $4.5 billion in gross cash and $3.5 billion in net cash. That number has grown dramatically over the last two years, so the liquidity of the company is really strong. With that, we'll end our comments and open it up for questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Matthew Cost of Morgan Stanley. Please go ahead.

Great. Good morning, everyone. Thanks for taking the questions. Maybe Dave, I just want to double-click a little bit on the commentary about genres and sort of breadth of growth and kind of 10 through 50 and the top developers. I guess it seems like that's a really important driver now, and you're having a lot of success. What are you doing, and what can you do to keep that ball rolling? To make sure you're seeing more genre expansion, more growth from those smaller developers, obviously something that happens naturally. But what steps should we be watching for you to take as a company to help keep that momentum going? And then I have one follow-up. Thank you.

Hey, great question. I want to highlight that besides RPG, sports racing, and battle, we do track all of the genres in the gaming space. And there's a bunch of genres in addition to this around avatar, social, whatever, where Roblox is amazingly powerful and well on its way to having more than 10% of that genre running on our platform, either by hours, bookings, or DAU. We've taken genre as a way of breaking down the whole gaming space and looking at it over the next five to six years to build a roadmap of what Roblox might look like when 10% of the gaming space is running on our platform. We have identified these three genres, RPG, sports racing, and battle, as key genres to highlight both the work we have to do but also the opportunity. A huge part of this is tech. We believe the core way the gaming space is running today is a little bit in the stone age and more developers will create a single build that will perform well on very low-end Android in difficult networking environments, as well as have that same experience launch immediately rather than download and have all the benefits of a platform like Roblox, dynamic economy, dynamic pricing, built-in safety, civility, AI, and all of that. So for RPG, sports racing, and battle, we're really looking at, do we have the tech on the platform? We shared it at RDC. Do we have the tech to build an amazing battle royale that runs great on a two-gig RAM Android device? Do we have the tech to build a super competitive sports game with great avatars on a gaming PC? Do we have the tech to ultimately build and run a 1,000-player experience? We're also looking at economics. We've shared initially that for higher priced experiences, paid access will give a higher revenue share. Stay tuned on that. On search and discovery, we're more and more rolling out ways for people to gather more users, both on and off platform. Long-term, we think in addition to great tech, we want the economics to be hyper-competitive. That's why we get excited when creators make more money on the platform, so stay tuned on that.

Great, thank you. And then just going to Mike, on the differential pricing initiative, it said in the shareholder letter that it's so far neutral to slightly accretive to margins. What innings are we in for consumer adoption of kind of those desktop payments and gift card payment options? As we move into later innings, will it become more clearly accretive to margins as you guys see it? And do you have any view on the announcement last night from the epic lawsuit and any ability that might have to open the aperture for you to do even more on the direct payment front? Thanks.

Matt, thanks for your question. Since we just launched differential pricing, I guess to stick with the metaphor, it has to be the top of the first inning. I don't know how many outs there are in the inning, but it's pretty early. We did testing before we launched and thus far, as we said in the letter, the results are good, but very much early days. It's logical to us that this is what we would see, but until we see it in practice, we don't know for sure. So, so far so good, but it's very early.

Yes, and just on the Apple side, I would highlight, currently, without any messaging in our mobile apps, we do see the Roblox community amongst themselves becoming aware that they get more Roblox on web with gift card and through credit card. This has so far happened organically. We're staying tuned to see what happens with the court ruling.

Great. Thank you so much.

Thanks.

We'll move next to Jason Bazinet of Citigroup.

I just had one quick question. Obviously, investors are very nervous about macro, and we don't have a lot of history with your company in terms of how it might fare in a downturn. So I'd just love to get your perspective on sort of the pace of innovation. Do you think that could just power through any sort of potential macro weakness? Or do you think investors should think about the consumer potentially weakening and therefore spending moderating a bit?

I'll start, and then Mike will chime in. It's interesting to note that we were actively involved during previous economic downturns, particularly in 2007 or 2008, and we experienced minimal impact at that time. Overall, Roblox attracts a large number of users who do not spend money on the platform, while those who do tend to spend only small amounts—not significant purchases like cars, houses, or vacation homes. This gives me some optimism. The idea that we can leverage innovation to navigate challenges is more of a statement than just an assumption. Even without innovation, we maintain a strong platform during tough economic times. We believe that innovation is crucial for capturing 10% of the gaming market, which is an important goal for us.

Yes, truthfully, I don't have much to add to what Dave said. Every investor will make their own macro determinations. Investors will map businesses against that environment and decide who they think will do well against that. At this point, given the quarter that we just produced, with growth so far, we're doing quite well, and we represent relatively low-cost entertainment, but that's where we are today. It doesn't mean we will be in four quarters. I agree with Dave's comments.

Yes, we don't import physical components to assemble Roblox.

Understood. Great color. Thank you, guys.

Thanks, Jason.

We'll move next to Clark Lampen of BTIG.

Thank you very much. Dave, I wanted to follow up on the comment you just made in response to Jason's question. You mentioned that most people on your platform aren't spending money at this time. Over the past year, you've done well to enhance engagement rates among the overall user base, with North America being a strong example this past quarter. You've also broadened the range of monetization options, AI capabilities, and new advertising tools that are very relevant to the industry. I'm curious about where you see the biggest opportunities for improving passive hourly monetization. I know that ads might not be a significant factor this year, but could you remind us of the potential prospects over the next couple of years and where there might be greater opportunities?

When we look at our bookings per hour, we see that as a healthy number. We generally see by region and age that scale with growth. We always first go back to growth rather than increasing bookings per hour. We think there's enormous opportunity for DAU and hourly growth. Some of this will come naturally as we analyze many of the genres on our platform, irrespective of monetizing the genres I mentioned. Typically amongst older users, you would find those monetized even higher than we currently do. So as we go after these genres and we target them, we believe there will be a natural ability for creators to monetize better.

And Clark, just to add to that, the market is as large as gaming at $180 billion. Even in a market that is flat or contracting, we're still around 3%, a little under 3%. With 31% growth this quarter, we are continuing to grow market share. The market share is still very small in a very large market. The track record of growing market share over the last few years hasn't been too good. In this quarter, we're starting to see genres and more developers making a good living on the platform. The dynamics for continuing to grow share are very good here.

Yes. And I would say, just to add to that, that doesn't mean we ignore bookings per hour. It means we focus first on genre expansion and DAU hour expansion. We already mentioned automatic price optimization, which improves bookings per hour, and regional pricing that we're not sharing numbers on early developers improves bookings per hour. As we move payments to higher leverage types, this also improves our ability to move that money back. So both genre expansion and a focus on bookings per hour.

Can I just ask a very quick follow-up on the direct payments push right now? Has that in any way changed the way that you guys look at the opportunity with gift cards, or is that really just augmented the push with a more elegant mechanism for users re-upping their Roblox balances?

The Roblox user base is communicative and savvy. The more we give Roblox proportionate to the raw cash we can put into our system, the more they become aware of that and nudge in that direction. Our gift card business is very healthy, and consumers are becoming more aware that with gift cards, they do get 25% more Roblox than they might get from a mobile native payment.

Thank you.

We'll move next to Cory Carpenter from JP Morgan.

Thanks. Good morning. I had two. On advertising, you mentioned earlier that the integration work with Google is underway. Just hopefully you could talk about what that rollout looks like and if that's something that you'd expect to perhaps be a meaningful contributor to bookings this year? And then also in the shareholder letter, you talked about being in a position to reinvest a little bit. Could you just talk about your biggest priorities on the investment side and where you plan to reinvest in the second half of the year? Thank you.

I'll go first. Any bookings are meaningful to us, so advertising is already from that definition contributing meaningfully. I'll leave that up to Mike, and we are seeing growth in all the various advertising channels. On the reinvestment, when we look at where we spend money, we would like payment processing to go down. We want personnel costs to be balanced and grow slower than bookings and revenue while becoming more efficient as we accelerate AI. We would like our infrastructure, trust, and safety costs to go down relative to bookings, but at the same time, get more efficient and maintain quality. That leaves the two which we would like to see go up: payments to creators, which we've said will exceed $1 billion, and slight improvement in our margins. That's the breakdown on those five. Mike, you can talk about if and when we would break out at.

Yes, we'll probably do that when we feel the number is big enough that it really moves the needle. To Dave's point, any revenue is meaningful, but it's not a very big business today. The core business is doing so well, growing quickly, and dominating the financial performance of the business right now. That's really where we should focus. Obviously, we've excited about where we are with ads and our partnership with Google. As soon as we have really good data to share, we will.

We'll move next to Shweta Khajuria of Wolfe Research.

Okay. Thank you for taking my questions. Let me try two, please. Could you please talk about the rate of margin improvement through the year? How should we think about it as we go through the year? And then the second is just on AI-powered tools. You've talked about this in the past that developers use. How should we think about the flow through or the benefits that you are seeing from that? Is that just time saved for developers? Are you seeing economic benefits? And where should we be seeing them? Thank you.

Yes, thanks for the question. On margins, let me just take a step back. Over the last five quarters, margin improvement in the business has gone 260 basis points, 710 basis points, 1,010 basis points, 510 basis points, and 750 basis points. So we've had a dramatic increase in margin. We've guided this quarter to a 314 basis point improvement at the high end of the guidance. We have given guidance for the full year. It is easy to do the math. We've baked in the beat on bookings and kept the margins for the full year the same. You can do the math on the back half of the year. So I’m happy to say we will not continue to improve 700 basis points year-over-year. That won't happen. What you will see from us is growth rates in cash flow exceeding growth rates in bookings for quite a while, which is very positive. We have so outperformed our guidance from late 2023 on margin that we've delivered multiple years of improvement in a single quarter. Last Q3, for example, over 1,000 basis points, which is like three years of high end improvement rolled into one. We've captured that cash flow very quickly, but you can do the quick math on the back half of the year.

On the acceleration of human potential with AI, I'll share three areas: Roblox engineering, creators on our platform, and then users on our platform. For both Roblox engineering and creators, we view AI as a human acceleration tool that allows individuals to do more. It’s similar to what I used to describe a calculator. This is a powerful calculator that can leverage people much more than a simple calculator. We believe both internally and on our creator platform, we will see higher quality, more output, and more creative output while still having humans involved. Long-term, we believe people coupled with the AI they use will enhance overall output. We’re making available code generation and 3D object generation on our platform. Stay tuned because what I shared in my prior comments is our goal is full 3D scene creation. Describe the environment you want, describe the objects in it, and generate that whole thing. Coupled with 4D generation, we want to create non-static interactive elements like cars, humans, animals—things that people can engage with instead of just static objects. Finally, for experiences and games on Roblox, there's unpredictability in what people will create with native embedded 3D and text generation. We hope to see generative fashion experiences where users can describe what they want to wear within games, allowing everyone on Roblox to be more creative.

We'll move next to Ken Gawrelski of Wells Fargo.

Thank you for the time. I appreciate you fitting me in. Just one for me: could you talk a little about the status of the Shopify partnership and also just more broadly, opportunities on the e-commerce side to drive e-commerce outside of maybe even the curated experiences that are on the platform today, but broaden the aperture a bit on e-commerce? How important and how strategic is that to the business in the longer term? Thank you.

I think it's augmentative and important at the same time. It's part of our vision not just to get to 10% of the gaming space but ultimately to reach 1 billion daily active users on the platform. We've shared that as we move to 10% of the gaming space, we estimate that could be around 300 million daily active users. Our goal is 1 billion. In that process, we do believe, in addition to the physical shopping we do, the fun experienced in a lot of fashion and clothing-oriented experiences on our platform will continue to expand to the purchase of physical items. The Shopify integration is early. We do not yet have a full simulation of a shopping center on the platform where users can walk around, try things on, and buy them. But we see that as an interesting opportunity. We also see physical shopping as a way to fully attribute advertisement experiences and close the loop on that. So it's important, but we're still in the early phases of this.

Thank you for joining us today. And that concludes our conference call.

Thank you. And that does conclude today's conference call. Thank you for your participation. You may now disconnect.