ROBLOX TO PARTICIPATE IN THE MORGAN STANLEY'S TMT CONFERENCE

All right. Good morning, everyone. Welcome to day three of the Morgan Stanley TMT Conference. My name is Matt Koss from the Morgan Stanley U.S. Internet Team. Very excited this morning to be joined by Naveen Chopra, CFO of Roblox. Thank you for being here. Thanks for having us. Yep. For research disclosures, please note that all important disclosures, including personal holdings disclosures and MS disclosures, appear on the Morgan Stanley public website at ms.com slash research disclosures or at the registration desk. All right. And with that, let's start with the hot topic. The market clearly views interactive entertainment as vulnerable to disruption from AI. And the technology is evolving so quickly that I think it's an understandable question investors are asking about the potential for disruption. So let's just start there. What do you think about the way the market has been approaching that topic, and how do you think it applies to Roblox?

Yeah, well, thank you for going straight there. No beating around the bush. Look, I don't think it will surprise anyone to hear if we think the market has it wrong. We think AI is very much a tailwind and an accelerant for our business. It's one of the reasons that we've been investing in it aggressively over the last several years. you know and i think the reality is like if i step back that the market seems to be kind of assuming that you're going to have this very small handful of ai winners and everyone else's business is going to get vaporized and i think that's honestly an overly simplistic way of thinking about how new technologies tend to be adopted and ultimately commercialized There will be companies not named OpenAI and Meta and Google who use specialized AI to disrupt their competitors and ultimately become winners in the next generation of AI and technology. And that's very much how we see Roblox, and we are mobilizing the business aggressively to make sure that we are one of those disruptors in our space. We have a large-scale platform business with very strong network effects, and we are using and building gaming-specific AI to further entrench our position as the platform of gaming. We see a world where these AI technologies will allow people to someday create games without having to write a single line of code. That translates to more creators and more content. And if you run a platform business like ours, that makes everything that we do from the discovery platform, the monetization platform, the safety infrastructure, the hosting infrastructure, the communication capabilities, the social graph, it makes all of those things much more valuable because you've got more content and more creators. So we're really excited about what this is going to unlock for the business, and as I said, we're investing to try to make it happen.

So what does it mean to be a disruptor, I guess, following on from that? Because you have a lot of tools that you've announced already, like the Cube model and the World model and other content creation capabilities in Roblox Studio. So what are they enabling that wasn't possible before, and what feedback are you getting from creators and users on those?

You know, this space is obviously moving very, very rapidly. And one of the ways that we have started to think about our product roadmap, call it for the short to medium term, is to do for gaming what we see a lot of other software development tools doing in, let's say, software more generally. Let me explain what I mean by that. I think most people here are probably now aware that over the last call at three to six months we have seen some this massive acceleration in in agentic coding and and what these agents are able to do in terms of software development is like mind-blowing you know these things code 24 seven. They are infinitely scalable. They're iterative, so they code all night. They test their own code in the morning, and then they fix a bunch of stuff and make it even better the next day. And they are able to do that because they are built on top of very sophisticated, very capable operating systems with APIs and the like. In gaming, Roblox is that operating system. And so we are starting to now provide the ability to plug in both AI tools that we develop internally as well as third-party AI tools to create that sort of acceleration on top of our own platform. And we're actually starting to see developers experiment with this kind of stuff. And they are using these tools to design games, to build three-dimensional assets, to orchestrate gameplay. And it's pretty exciting when you see what they can do with it. In fact, there were some folks just yesterday who were showing me a demo. These were folks internal at Roblox, where they had taken some of these AI agentic tools, Again, a combination of stuff we've developed internally as well as some external stuff. And they created a game where you could drive around the streets or actually walk around the streets of San Francisco. And the whole thing was prompt-based. So they basically said, create a game where I can walk around the streets of San Francisco, make it physically accurate and as high fidelity as possible. and in 24 hours they had a game created entirely by agents where you can walk around the city of San Francisco you can look at, it's basically the downtown area but you can look at the buildings, they're physically accurate every traffic light is in the right place 24 hours and that ultimately is going to turn into a world where you could have a team of call it three people developing like a GTA class game in maybe a week Not there today, but that sort of acceleration in content creation is what we are so excited about and what we think will unlock tremendous growth in our business.

You mentioned in there this kind of a mix of internal and external tools. I guess what is the mix between those two things, and how do you approach the decision about whether to build from new, whether to use open source, or whether to work with a larger partner for those tools?

The reality is developers are going to make that decision. Our goal is to make sure that we have all the tools available that allow you to make really high-quality games. At the end of the day, we're ambivalent as to whether you use our tools or whether you use third-party tools. We want that content to exist because that's going to make our platform more valuable.

That's like the MCP server, I guess, allowing that interoperability. So I think moving away from AI for a moment, the platform's seen a lot of growth in users and engagement over the past couple of quarters. or a number of really notable hit games on the platform last year. So on that topic, I want to start by asking, what has gone right, and how do you think about the sustainability of that engagement as we move through 2026?

Yeah, I mean, as you pointed out, 25 was an incredible year for us. You know, just to give people some dimensions around that, I mean, if you look at users on our platform between the end of 24 and the end of 25, Um, you know, we, we, we grew users, um, you know, by 70 ish percent, uh, and bookings growth was 55% for the full year. So very healthy growth. Um, now there is no single sort of silver bullet that I would point to and say, this is the thing that we did that unlocked all of that. The reality is this is a platform business and there are initiatives across every dimension of that platform that worked together to enable that kind of growth and enable the success of some of the very big viral hits that obviously contributed to 2025. Just as a few examples, we continued to make a lot of progress around things like search and discovery. That led to significant sort of content diversification on the platform. We saw a double-digit increase in the number of unique experiences that people engage with in any given month. We've also seen double-digit increases in time spent on a lot of these different experiences. So, you know, real benefits coming out of continued evolution of search and discovery. You look at monetization, and we have continued to deploy things like regional pricing and price optimization. These are basically tools that help our developers ensure that the virtual goods that they are selling on Roblox are optimally priced given the nature of the good and the location of the user. And as we've continued to evolve those kinds of capabilities, we've seen, for instance, outside the United States, massive growth in the number of payers on our platform, basically doubled the number of international players on the platform. And we've also seen very, very healthy growth in bookings per active user. So all those things work together. We've made major strides around safety as well, which is a huge priority for us, as you know, most recently rolling out facial age estimation. And so it's a combination of all of those things that really facilitated the growth that we saw in 2025. And we expect to see more of that in 2026. We've got a lot of momentum coming out of 2025. We like what we're seeing in terms of the content pipeline. We've got a really ambitious product roadmap. And it's the combination of all those things that make us bullish about the long-term growth opportunity in our business.

There are a lot of things in there. And I noticed one thing that you didn't raise is, oh, we're going to have another giant viral hit in 2026. Obviously, those things are hard to predict. But we saw it happen a couple of times in 2025. I think there's a perception from investors that Roblox is a little bit of a hit-driven business. How do you think about it, and how would you respond to that?

Well, I'd respond, I guess, by pointing out some important facts, right? I mean, Roblox is a platform with over 14 million different experiences, millions of different creators, 144 million daily active users as of the end of 25, and, you know, call it 125 billion hours of engagement. And interestingly, if you look at 2025, on average, I think something like two-thirds of that engagement time was spent in experiences outside of our top ten. So what we describe as kind of the torso and the tail of the platform is a huge part of this business and it's growing at a very healthy rate. You know, I sort of highlight these stats on each of our earnings calls and, you know, like in Q4, those experiences outside of the top 10 grew bookings at, I think, like 55, 56% year on year. So they are really important parts of the platform. And if you look at the business as a whole, like in Q4, we didn't really even have a big new viral hit, and you still saw very high levels of growth in users, in hours. Bookings grew 63%. So, you know, I obviously came from the entertainment industry. I know what a hit-driven business looks like. That's not what I see in Roblox. We love the big viral hits. They obviously contribute to the platform. They help attract a lot of new users. They lift other elements of the platform. But this is not a business that's dependent on those.

I think a closely related concept to that is genre expansion and trying to broaden what's available for people to play on Roblox. Maybe give us an update on the initiative that you've been undertaking for a while now to broaden out into many different types of games and experiences and sort of what opportunities it opens up as you try and continue to reach a wider and wider audience.

Yeah, look, for us, genre expansion is really a critical part of audience expansion, right? We want to continue to attract new users to Roblox. And one of the things that's been really exciting for us that we've learned over the last couple months, really, just as we've rolled out mandatory age checking, which now gives us our first view of, like, the actual age of people on our platform. and it demonstrated that we have a huge opportunity ahead of us to bring older users onto Roblox. I think we're like less than 10% penetrated in 18 to 34-year-olds in the U.S. market. So there's this massive opportunity ahead and we know that we need to evolve the selection of content that exists on the platform in order to attract those users. And so there are a variety of things that we're doing to try to make that happen. I would largely put it into kind of two different buckets. First bucket would be a bunch of stuff that we need to do from a tech perspective, right, to be able to facilitate games that have higher fidelity, higher performance, more complexity. We've talked and demonstrated some of those things in the past, whether it's texture streaming or SLIM or server authority. We won't get into the weeds of all those things. and there's a whole roadmap of stuff that we'll continue to do to facilitate those kinds of games. And that all gets accelerated by the AI stuff that we were talking about at the beginning. So that's really exciting. And then from, call it a platform perspective, there are a variety of things that we are starting to experiment with to really help our creators be successful with different types of content on the platform. And that's anything from thinking about our discovery experience, our user interface, and perhaps targeting that or designing it a little differently, depending if you're a 14-year-old user or a 34-year-old user, thinking about the promotion algorithms, the off-platform user acquisition that we partner with developers on, the financial incentives that we provide developers in terms of their economic participation. Like, all of these things are levers that we can pull to try to encourage development of content that we think will appeal to this older audience, which, as I said, is a really exciting growth opportunity.

Maybe translating some of those themes into your outlook for 2026. I think that your guidance for 2026 bookings, I think, was comfortably ahead of where the buy side was expecting. You saw the stock react positively to that. Maybe tell us more about the work you did internally to arrive at that, the underpinnings of the, I think, 22% to 26% bookings growth this year. And since you won't be providing annual guidance after 2026, I guess, how is your guidance philosophy evolving now?

I'd say there are probably four things that we were focused on in thinking about how 2026 would play out. First, users. We had massive user growth in 2025, as we've talked about. And we wanted to make sure we understood what the behavior of those users was going to look like because, you know, they represent a huge chunk of the platform. And we've been encouraged by what we've seen. You know, retention, you know, into call it month three, four, five, six, which is kind of really important in the business, has been healthy. The engagement and monetization of those users looks a lot like users on the rest of the platform. So, you know, we can kind of think about this as a lot of the historical trends continuing. So that was an important input. Second, content. You know, as we talked about, the viral hits are really difficult to predict. And we don't bank on those in terms of how we put together our guidance. But we do assume that there's going to be a cadence of new, fresh content on the platform. And so we look at that pipeline, and we've been, again, encouraged by what we've seen in the early part of 2026. And that is important to really that core of the platform, right, which is the two-thirds plus that is not in those top 10 hits. So that's something we've looked at closely. We've also been very focused on the rollout of facial age estimation. In early January, we basically started requiring people to go through an age check in order to access communication features on our platform. It's very important from a safety perspective. We knew that that would create some headwind in terms of engagement and bookings when we first rolled it out. It would take time for people to go through that process and then kind of return back to earlier levels of engagement. And so, you know, we took some time to study. We rolled that out a little earlier in a couple territories, and then we rolled it out globally in early January, and so as we got more data about exactly how that was impacting things, we were able to factor that into our guidance as well. And then the fourth element is our product roadmap, and I would not underestimate the importance of that. We have a whole bunch of initiatives across the engine, across user, across communications, across discovery and, very importantly, in our economy as well. And we actually work very hard to estimate how those things are going to impact bookings growth and engagement growth on a year-over-year basis, and all of that stuff gets rolled into our guidance for the year.

You talked about facial age estimation as kind of one of the important assumptions underpinning it, and you've mentioned, you know, even in this conversation, how important safety is. It comes up a lot around roadblocks. I guess tell us more about why that's so important. You mentioned how you've kind of baked in the headwind to engagement into your expectations, but I wonder if you look out to the end of the year and into 27 and beyond, are there positive opportunities that could come from knowing how old all your users are?

I mean, this notion of facial age estimation for us started with safety because, you know, we view safety as kind of everything on roadblocks. Like if you want to provide a safe experience for people of all ages, you actually need to know the age of the people that are on your platform. And, you know, unfortunately, the reality is until very recently, that was a difficult thing to do. And it's the reason why the vast majority of large-scale digital platforms rely on self-reported age information. And guess what? When you ask people to self-report their age, they lie. It turns out they lie in both directions, by the way. young people lie about being older and older people lie about being younger. I guess no one's happy with their current age. But knowing the age of our users allows us to both provide a safer environment, but also just a better experience for our users. So from a safety perspective, it's about doing things that make sense from, call it a societal norm perspective, right? So if we know you got a 12-year-old on the platform, we're generally okay with that person being able to communicate with an 11-year-old and a 13-year-old, maybe even a 14-year-old. But it doesn't feel right for that person to be communicating with a 35-year-old that they don't know in real life. So we need to actually know the ages of these people in order to put the appropriate guardrails in place. And that's what we're doing now with the rollout of this technology. But it also makes the product better. And what I mean by that is, again, if you just stick with the communication example, if I'm going to put you in a game, chances are if you're a 12-year-old player on Roblox, that experience is going to be a lot more fun if I put you in a game with other people who are also 12 years old. The way they play, the way they communicate, the lingo that they use when it's on chat, guess what, it's different if you're 8 years old versus if you're 13 years old versus if you're 25 years old. And it's just a better, more fun experience for the players if they are engaging with people sort of in a similar age band. And that extends beyond just, you know, the communication piece of it, you know, the content that I surface, the way that I think about, you know, what I'm going to promote in the user interface. If I know you're 12 years old versus if I know you're 25, I'm going to do different things. So having that information is incredibly valuable for us, both from a safety perspective and also just from making a better product experience.

Got it. That sounds like my days of going and beating middle schoolers or front lines are a little numbered then. Hopefully, yeah. So direct payments. So it's something you called out on the fourth quarter as scaling in the mix of how consumers are buying Robux. So I'm wondering, what are you seeing in terms of the financial impact there? How do you think about the longer-term implications for margins as direct payments become a larger part of the mix?

Yeah. Look, we've seen meaningful operating leverage capture by driving down COGS rate, moving more of our payments to web platforms and other lower cost platforms. Gift cards are a big part of our business as well, and they tend to have lower costs than app stores. and that contributed meaningfully in 2025 I do expect it will continue to be a contributor in 2026 and one of the things that I pointed out on the call was that we've got this headwind to margin in 26 from the DEVEX increase that we announced in 2025 but if you look at the high end of our guidance we expect margins to be roughly flat despite that headwind and one of the reasons we think we can get there is because of incremental leverage that we expect to see from COGS. That's not going to be sort of linear improvement every single year because there are a lot of different things that go into it in terms of how aggressively we push people to different platforms, what we can negotiate with different platforms. In the gift card part of the business, there are different fees between physical gift cards and digital gift cards. But we see all these things moving in the right direction such that COGS will continue to be a source of leverage for us. and one of the things that we can use to fund either margin expansion or increases in DevEx for our creators.

And how do you approach the decision between those two choices?

Look, in the long run, they're both critically important to us. We want our developers to have an even more exciting economic opportunity on Roblox, and we also, you know, are committed to expanding margins in the business over time. So, you know, the trick is that there's a little bit of a sequencing dynamic between the two. Like we like to capture the operating leverage and then use it to fund other parts of the business, if you will. So generally that's how we try to approach it. But, you know, we'll see how that plays out over the next few years.

Let's move on to advertising. So we've written a lot in the past few years about how large we think the advertising opportunity on Roblox might be, especially as you look out over the next couple of years. And you've had some important developments there just in the past year or so in terms of rewarded video-going GA. You continue to make progress on sponsored tiles. I guess, how is that rollout tracking compared to your expectations, and what do you want investors to know about Roblox's ad opportunity?

I think what I want people to know is that we are very excited about the long-term advertising opportunity on the platform. In the short term, there is still work to be done to scale it. I think the long-term opportunity is exciting because we have some really unique assets to bring to advertisers. We have the ability to safely advertise to younger audiences, which I think is becoming more important by the day to advertisers and users. We have tremendous engagement on our platform, call it roughly three hours a day. So, you know, this is an audience that advertisers really want to get in front of. Now, at the same time, you know, inserting advertising into gaming is something you have to be very thoughtful about. It's different than, call it linear video advertising, where you can just say, oh, every 12 minutes I'm going to show you an advertisement. With gaming, it's much more interactive. and so you have to work very closely with game developers to make sure that you're inserting advertising in a way that is not going to ultimately be detrimental to the user experience. So we really think about our advertising business in two buckets, sort of a traditional brand advertising business and then there's an endemic advertising business which is really what allows our creators to pay for placement and user acquisition on our platform. we've got really strong product market fit in both of those based on I think sort of our early learnings on the branded side as you mentioned we're really focused on our rewarded video product which has the benefit of being you know an industry standard product it's well integrated it's highly measurable but it is something that does take some time as I said to integrate from a supply perspective on the endemic side or for creators our core product is sponsored tiles which again allows them to pay for call it premium placement in our user experience that business has seen some very healthy growth again starting at small scale but the growth rates are pretty compelling and we've been able to give our creators the tools to manage those kinds of campaigns and and very importantly, to help them measure the impact of those kinds of campaigns. And from a financial perspective, those dollars actually don't show up as bookings. They are an offset to Devex in our P&L, but it's still an important contributor to the overall economic equation over time. Again, in the near term, contribution is modest, growth rates are high. Longer term, big opportunity.

When we think about the user growth opportunity, you know, domestic, and when I say domestic, I'll include kind of North America and that versus international. Where are you in the journey of reaching those audiences in kind of your core, most mature markets versus elsewhere? Because you called out on the most recent call strength in Japan, India, Indonesia, you know, as real drivers of growth in APAC. How do you think about the opportunity in those markets versus where you are in the U.S. and Canada now?

Well, what I think is super exciting about those markets is just that we have very low penetration. So we've seen, as you pointed out, like tremendous growth in the last few quarters in those markets, both in terms of users and monetization. monetization. You know, I mentioned earlier that like the number of international payers that we have on the platform, you know, kind of doubled in 2025. So the slope of the curves there is really exciting. But the penetration is still small. So there's a huge growth opportunity. There's also a growth opportunity from a monetization perspective. When you look at how many of those regions monetize relative to what we see in the United States, you know, there's a big gap. I don't expect those things to necessarily equalize, just, you know, there are economic differences between countries, but, you know, there's definitely room for growth, and a lot of the things that we're doing from a product perspective and a content perspective are intended to facilitate that. The formula for us to continuing to drive that growth and maximize that penetration is actually the exact same thing that we're doing in the United States, meaning it's about product, it's about content, it's about audience expansion, and if we do those things, it'll drive growth in the United States and it will also drive growth globally. The beauty of gaming is that it is a pretty global market, so the things that appeal to users in the United States and Canada tend to also appeal to users in other parts of the world. So there's a lot of leverage from that perspective in the business.

Got it. Maybe close out with kind of two more thematic ones or longer term ones. I guess you've talked a lot over the past couple of years about a goal of reaching 10% penetration of the game software market, so around $200 billion. I think you're about 3% to 4% penetrated in that today. So of everything we've talked about today, what are the key levers investors should be watching to measure your progress towards that goal, other than, of course, bookings?

Right. Well, by the way, we have an even more ambitious internal target for U.S. market share that we would like to achieve. You know, we've talked about a number of the different initiatives that we have to try to accomplish that. But if I really boil it down, you know, the path to achieving those goals is about tech. It's about genre slash content expansion, which leads to audience expansion, which translates to growth and monetization. Like, that's the formula. If we can put all those different pieces together, we will continue chewing up this marketplace.

And then finally, just on AI, kind of ending where we started, what would you highlight as maybe, when you talk to investors, what comes out as the most underappreciated opportunity to deploy AI at Roblox and take advantage of it? And then what is the challenge that you're most focused on executing?

You know, look, the AI opportunity is largely what I said at the beginning. I mean, we see this as a massive accelerant to our platform. And I think if you – the folks who sort of look at it as a threat don't understand the nature of our business. You know, as a platform, we want more content. We want more creators. We want it to happen faster, and we can use AI to help make that happen and provide people the tools to make every aspect of our platform, you know, that much stronger. So, you know, we could not be more excited about it, and if you look at how we are mobilizing internally to make that happen, it's, like, at the core of everything that we do. Challenge? You know, look, I think the biggest challenge that we deal with is just sort of the short-term versus long-term. Like, there's just, you know, the amount of time we spend people trying to figure out, like, oh, what's going to happen to bookings in Q1 or Q2? And the reality is, like, that has no bearing on what the value of this business is going to be five years down the road. So, our focus is on the latter.

Thank you so much for being here.

Thank you. Thanks for having us.