Roblox Earnings: What Investors Need to Know

Mobile entertainment company and recent IPO Roblox (RBLX 1.35%) recently reported its latest earnings. In this Fool Live video clip, recorded on Aug. 19, Fool.com contributor Brian Feroldi breaks down the numbers and the important takeaways investors should keep in mind. 

Brian Feroldi: I'm going to transition to Roblox, ticker symbol RBLX for those that don't know Roblox, this company came public earlier this year. It is a gaming platform that creates an online world primarily aimed at younger players. The majority of their players are under the age of 13 and it's just grown like gangbusters. All three of my kids are active on Roblox, absolutely love playing. You can go on there, you can chat with your friends. It's a very safe environment, especially when compared to other games like say, Fortnite -- different environment.

Let's see how they did with their earnings report. First off, this is from a Fool.com article and this is a bit confusing, bear with me a little bit here. Roblox is expected, to report $690 million in revenue and earnings of $0.23 per share. If they hit that, that would be 245% growth. Which is good, that would be a good thing. How do they actually do this? Just to keep that on our mind, $690 million. Revenue was up a 127% to $454 million.

If your eyes are not popping like, "Wow, is that a big miss?" You would be confused, just like I was. However, with Roblox, bookings and revenue are being used essentially interchangeably. Bookings were $665 million. I'll explain the difference between the two, but $665 million versus $690 million estimates. What is bookings? Bookings when you're playing Roblox, the way that Roblox is monetized is through in-app purchases, you can download and play the game for free, but if you want to buy items or explore different worlds, that kind of thing, they are all purchased in the game with something called Robux. You put say, $10, you convert real money into Robux. However, the accounting rules dictate that company can't count that $10 as revenue until it's spent in the game.

Same thing with like a gift card. If you buy a gift card at Starbucks, Starbucks can't count that as revenue because you haven't spent it. Once you spend your Starbucks gift card, then it's counted as revenue, even though the company already has the cash. That's one of the dynamics that you'll have to be aware of with Roblox. In this case, bookings, the amount of cash that they've receive was $666 million that was short of their revenue estimate, but the actual revenue amount was 127%. This is one of the few cases that I've seen when analysts were actually expecting and judging this company by bookings, not revenue. I follow a couple of video game companies this year that I've seen do that.

But anyway, let's get onto the number. Net cash from operations was up 64% to $191 million. This is another factor because of the dynamics between bookings and revenue, there's a huge gap between cash flow and net income. That's just the dynamics of the business. Moreover, this company also has a whole bunch of stock-based compensation that just is hitting its books now because it recently came public. Its numbers are even more confusing. Net loss for the quarter was a $140 million, at least on a GAAP basis, but again, net cash provided by operating activities were $192 million. These numbers are just on different planets from each other. The difference between cash flow and net income.

Free cash flow during the quarter was up 70% to $168 million. This company's bank accounts balance is trending in the right direction. If we get into user numbers which people keep a keen eye on, active daily users grew by 29% to 43 million. The number of unique players are up almost 30%. That's a really strong growth. The number was strong both in the U.S. and Canada. That was up 43% and even stronger among players that are age 13 or higher. That's really interesting because, again, this platform is mostly aimed at younger kids, those that are age 13 and under.

One of the thesis that for the stock is that they can continue to move upmarket and they'll hold onto players for longer. This is an indication that they are having some success doing that. Although, of course, the caveat being, these are COVID times and it's hard to know how much of this is one-time, repeatable, and how much will be permanent going forward. Hours engaged, the number of total hours that people play on the platform, that was only up 13%. The signs that while there is a lot of players, that engagement isn't necessarily keeping up with that.

Let's move on to management's commentary, They essentially said, "We are doing everything that we need to do. We are fulfilling our mission and that creators and players are joining our platform." I dug into the call a little bit. There is nothing here that really bounced out at me. The only exception being that this is the first time I've seen this. They're recognizing their bookings over a 23-month period, which is the average life of a player. The average Roblox player is essentially monetized over a 23-month period.

As investors, we obviously want to see that number grow over time. That indicates that they are sticking around on the platform for much longer. But even in here, they point out that they themselves, they're seeing a lot of confusion in the analyst community among bookings and sales. That's just something you have to dig one step further to look beyond when you're checking the company's results. As for the stock, the stock is only down about 2% today, which isn't nearly as bad as I would have expected given that the company missed on the top line and had a net loss on the bottom line, but if you're digging into the numbers, it's clear that the company is still benefiting from COVID.

What's going to matter from here is how sustainable is this? We're seeing a big slowdown among a lot of companies like this. Zynga, for example, recently reported a big slowdown in their user metrics as of June and July. What's going to happen next? We don't know, but that's going to be hugely impactful. This company did not give guidance on what's going to happen next. But if you're looking backwards, there's no doubt in my mind that the answer is thesis is on track for Roblox. The next couple of quarters we're going to learn a lot more about how sticky the platform is and those users that they picked up, are they going to stick around? That's Roblox, RBLX.