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Roblox. US released its fourth-quarter results for fiscal 2023 before market on February 7, EST:
Bookings in Q4 exceeded expectations, mainly due to the stronger willingness to spend per capita during the holiday season. The company's growth guidance for the first quarter and full year of 2024 is also better than the market would like (bookings 2024 Bloomberg expectations are lagging behind, and the actual consensus is higher at around $4 billion).
Overall, the user indicator slightly exceeded expectations, mainly reflected in the user group over 13 years old (higher purchasing power), which led to an acceleration in per capita consumption month-on-month.
The performance of the profit side was average, and the loss widened more than the market expected. However, Roblox's expenses are more related to turnover, and there is still a trend of loss reduction in terms of the proportion of expenses in bookings. In addition, operating cash flow increased seasonally sequentially, but free cash flow continued to improve despite a significant year-on-year decline in capital expenditure.
In other words, as long as Bookings stays strong, Roblox isn't really much of a problem. At the Investor Day at the end of last year, one of the growth prospects painted by the company was:(1) From 2025 to 2027, bookings will maintain a compound annual growth rate of 20%. (2) On the profit side, in the next 3-5 years, the adjusted EBITDA will be optimized by 100-300bps per year
How does revenue growth come about? - except for the toppings (Expand to more platforms, such as Meta's Quest and Sony's PlayStation in the short term).In particular, in addition to doing more penetration for people over 17 years old and increasing the stickiness of existing users, the second is to increase ad monetization. As for the outlook for advertising revenue, the company's previous goal was to contribute $1 billion a year in the long term, but what about the short-term progress? You can focus on what the management said at the meeting.
How can profitability be improved? -- Low-speed investment, concentrated investment. Roblox's capital expenditures have fallen sharply for two consecutive quarters, further slowing the growth rate of infrastructure spending. Although in the short term, due to the increase in employee expenses and the increase in losses, many of the employee expenses are non-cash outflow forms of equity incentive expenses, so the final operating cash flow situation has further improved under the seasonal expansion of the subscription turnover that has not been consumed in the current period.
As in the previous quarter, Roblox continues to strengthen investors' long-term confidence in the two areas that the market cares about most: loss reduction and future growth. The cash-flow-friendly business model allows Roblox to continue to patiently polish the ecosystem and enhance user stickiness.
However, to really reverse the profit and loss situation, look at the progress of advertising in the short term. In the medium and long term, it is necessary to attract more young and middle-aged users through more mature and high-quality content created by developers, so as to increase the per capita payment and obtain more advertising budgets.
Compared with valuations, the market's outlook for Roblox still implies relatively optimistic expectations (24e ev rev 7x, valuations are in the high region among gaming peers), which can be referred to our previous long-term hypothetical deduction and calculation ("Is it worth betting on Roblox in the metaverse?"). We recommend focusing on tracking Roblox's advertising business, and we expect to launch ** ads in the first half of this year, including standard brand ads and rewarded ads.
Rationally speaking, due to the difference in purchasing power and scale of user groups, it is more difficult for Roblox to advertise than Netflix for cross-border advertising, so when the market expectation is relatively full, the impact of the actual landing effect on the fluctuation of valuation is very critical. Dolphin Jun believes that although the user portrait is too young, we maintain a neutral and optimistic expectation for Roblox's advertising business under the improvement of the industry's budget margin and the continuous expansion of Roblox this year.
Performance indicators at a glance
Detailed interpretation of the financial report
1. Core Metrics Bookings Growth Accelerates
For Roblox, an excellent business model with a large proportion (25%) of the developer's share of the operating expenses lagging, under the normal business cycle, just keep an eye on Bookings, and at most look at the short-term trend based on deferred revenue.
Bookings grew 25% year-over-year in the fourth quarter to exceed $1 billion for the first time, benefiting from strong spending intent during the holiday season and accelerating sequentially. In terms of deferred revenue, the net increase in the fourth quarter also hit a new high, with a year-on-year increase of 16%, ensuring a short-term growth trend.
The company's bookings guidance for the first quarter and full year of 2024 also exceeded market expectations, with an increase of around 20% year-on-year. This is also the management's long-term outlook for solid growth at the Investor Day last November, with 20% annual growth.
Second, the expansion of superficial losses is not a problem
Roblox's revenue statement grew well in the fourth quarter, but operating loss under GAAP widened sequentially, primarily due to faster increases in employee expenses and developer share.
However, the cost mainly follows the flowing water, and Dolphin Jun has focused on the way Roblox recognizes revenue and costs in "Roblox: The "Big Pie" of the Metaverse", so from the perspective of "fee bookings", the rate change is more in line with the actual business situation. If we compare operating profit to bookings revenue, we can still see a trend towards overall optimization. In the fourth quarter, in addition to the relatively stable ratio of payment channel fees and developer share ratios, the proportion of other operating expenses decreased significantly.
On the other hand, more than half of employee expenses are non-cash payment equity incentives, so whether it is for ADJEBITDA will also look a little friendlier in terms of cash flow.
Q4 Adjusted EBITDA 08.1 billion, the profit margin increased to 23% quarter-on-quarter, an increase of 300bps year-on-year, which is in line with the management's medium- to long-term optimization rhythm (100-300bps year).
Under the high operating cash flow, the company deliberately reduced investment or implemented efficient and concentrated investment, resulting in a sharp year-on-year decline in capital expenditure for two consecutive quarters, and finally achieved a net inflow of $78 million in free cash flow in the fourth quarter, a significant improvement compared with the same period in previous years.
Third, users have a strong willingness to shop during the holiday season
The expansion of Roblox's ecological traffic has been relatively stable, but for entertainment platforms, the fourth quarter is not an obvious peak season for customer acquisition due to the return of students to school. Roblox's overall net user growth in the fourth quarter was not large, at 1.3 million, but it was all from users over the age of 13. This is the second year in a row that the growth rate of users over the age of 13 is greater than that of the age of 13. And the more older adult users there are, the more helpful it will be for the promotion of advertising business.
By region, user growth in the fourth quarter mainly came from Europe (e.g., Germany) and Asia-Pacific (e.g., Japan), and North America was already a mature market before the emergence of new content that crossed the user circle, and it was already difficult to maintain net growth.
Although user growth is average, user stickiness remains stable, and the key is that the year-on-year growth of individual purchasing power has accelerated. Total user time in Q4 still increased by 21% year-over-year, but average time per user remained stable. Therefore, the high growth of bookings in the fourth quarter is more due to the increase in the willingness of individual payers.
In 2023, Roblox will gradually get out of the base problem of the subsidence of the epidemic dividend and return to the two-wheel drive state of both volume and price.
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