Roblox’s Q1 loss wider than expected, but cash flow surges 23%

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Roblox reported a wider-than-expected Q1 loss of $268 million on Wednesday, causing investors to focus on a path to profitability. However, the company also revealed an unexpected 23 percent increase in free cash flow to $773.8 million.

Roblox is set to tap into a new revenue source with advertising on user-generated content. The company has allowed 200 game developers to incorporate in-game advertising. It expects to start reporting income from those ads in the current quarter.

Despite mixed results, the platform’s daily active users reached a new record sum. As a result, the firm’s stock surged over seven percent to nearly $39 following the Wednesday announcement.

The online multiplayer game reported a 22 percent year-over-year increase in both its revenue and daily active users (DAU) count for Q1 of 2023. As the company gained $655.3 million in quarterly revenue, its DAU also grew from 54.1 million to 66.1 million in just over a year.

The game, which allows players to build their own games and socialize with friends, saw a 23 percent year-over-year increase in total hours played. It also saw a corresponding 23 percent increase in “bookings” for its virtual currency, Robux.

“We expect to see more of our bookings processed through credit cards and prepaid cards, which will also have a positive impact on margins,” said Roblox chief financial officer Michael Guthrie to Forbes.

Targetting older age groups

Roblox’s Q1 performance was deemed strong by CFO Michael Guthrie. Over the past eight quarters, the company’s investments have led to increased content developers, particularly those with large followings.

Roblox CEO David Baszucki specifically highlighted the platform’s success in enabling creators to attract a global user base spanning all ages.

Roblox indeed experienced growth across age groups, with the largest increase in the 17-24-year-old cohort. This development is favorable for profitability since expanding past the current customer base of 13-and-under will increase revenue, with older customers having more disposable income and higher bookings per user.

“Aging up the Roblox platform is crucial for Roblox’s future growth,” said Nicholas Cauley, an analyst at Third Bridge, to Forbes.

According to Cauley, the platform’s effort to feature more mature games like Frontlines to lure older gamers demonstrates that the Metaverse pioneer “is becoming increasingly capable of attracting over-13.”

The company expects more bookings processed through credit and prepaid cards, leading to lower processing costs than mobile purchases and a positive impact on margins. However, for now, the average bookings per user remained flat at $11.50 for the quarter, suggesting that the company has yet to benefit from economies of scale as sales rise.

Optimistic outlook

Despite the Q1 loss, the unexpected increase in free cash flow and the potential for new revenue from advertising on user-generated content has investors optimistic about the platform’s future.

Roblox is widely considered a “proto-metaverse” that shows an expansive, cross-platform, interactive future. However, it operates within a closed Web2 ecosystem where digital items and virtual currency cannot be carried onto other gaming platforms.

In contrast, the “open metaverse” advocated by Web3 builders would let players own their items as NFTs, which can be used across games and platforms. Although Roblox has started experimenting with scarce digital items that act like NFTs, they remain locked to the platform.


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