What happened
Shares of Roblox (RBLX 1.35%) surged by 17.6% in May, according to data provided by S&P Global Market Intelligence.
This rise lifts the shares of the game creation company by 50.3% year to date.
Image source: Getty Images.
So what
Roblox posted a commendable set of earnings for its fiscal 2023's first quarter (Q1 2023), building on the momentum from its 16% year-over-year (YOY) rise in revenue for 2022. For Q1 2023, revenue improved by 22% YOY at $655.3 million, with bookings increasing by 23% YOY to $773.8 million. Bookings are a forward-looking financial metric that shows customers' commitments to pay for using Roblox's services, so the improvement is a good sign of robust demand for the company's platform. The business also generated a positive free cash flow of $81.9 million, reversing three consecutive quarters of negative free cash flow.
Operating metrics were also encouraging, with average daily active users (DAU) climbing 22% YOY to 66.1 million. The increase was broad-based across regions, with Europe posting a 27% YOY jump while the U.S. and Canada saw a 16% YOY increase. Hours engaged rose in tandem with DAUs, rising by 23% YOY to 14.5 billion. The over-13 group saw a 33% YOY jump in hours engaged, while the under-13 group posted a 10% YOY improvement in the same metric. These numbers show that not only are more users hopping onto Roblox's platform, but they are also staying there longer.
Now what
There could be more good news to come as the company announces that it will slow its headcount increase. Roblox's product development staff has delivered steady product improvements, leading to a YOY increase in bookings. With hiring slowing down, staff costs should also moderate, and operating leverage is projected to kick in by 2024 and 2025, allowing profit margins to expand.
Roblox has also built up its data center in Virginia and will not need to invest more in infrastructure for the time being. Hence, positive operating leverage will also kick in, whereby the growth in bookings will exceed the rate of increase in expenses. The company should see its financial profile improve steadily as growth in DAU and hours engaged continues while expenses rise slower, bringing it ever closer to posting both operating and net income.
