Roblox Rethinks Strategy as Shares Plummet, Young Audience Matures

The thing about shiny new things, is that they are often dulled by repeated play.

Roblox, the virtual world gaming platform, is finding that out the hard way as its muted second quarter guidance — released Thursday morning (May 9) — has since sent the company’s shares spiraling more than 20% as of reporting.

“Our teams have been hard at work identifying opportunities to drive DAUs (daily active users), Hours, and bookings growth rates back to 20% year-over-year. We began experimenting with changes in our AI-driven discovery algorithm and the positioning of various content types on the Homepage. We reintroduced platform-wide events like ‘The Hunt: First Edition.’ And, we continued to improve the quality and performance of our app and experiences,” said David Baszucki, founder and CEO of Roblox, in a release announcing the company’s first quarter 2024 financial results.

“We want to be very transparent, conservative, and responsible, which is why we made the very difficult internal decision to adjust our guidance,” he added during Thursday’s investor call.

Roblox lowered its full-year bookings guidance to between $4 billion and $4.1 billion, down from $4.14 billion to $4.28 billion.

And while the implication is that Roblox is struggling as its captive teen-and-below audience ages up, the company shared that generated more free cash flow ($191.1 million) in the most recent quarter than in all of 2023.

Almost across the board, Roblox captured growth across key metrics — just not as much as Wall Street was expecting.

The company’s average monthly unique payers were 15.6 million, up 13% year-over-year, and average bookings per monthly unique payer was $19.68, up 6% year-over-year. Hours engaged rose 15% to 16.7 billion; while average daily users increased 17% to 77.7 million.

“We want to be optimizing not just short-term improvements in bookings and DAU, but long-term platform health as well,” Baszucki said.

Read more: Meta Reality Labs Celebrates 10-Year Milestone, Has Lost $50+ Billion

Building the Infrastructure for Future Platform Growth

“We are operating more efficiently,” said Michael Guthrie, chief financial officer of Roblox. “Over the past three quarters, we have reduced certain infrastructure and trust and safety expenditures, and we have reduced the growth rate of personnel costs (excluding stock-based compensation expense) by holding headcount flat.

“Capital expenditures are down nearly 50% in Q1 2024 compared to last year. As a result, this past quarter we produced record amounts of operating and free cash flow,” Guthrie added.

As the company looks to stay on track with the financial targets outlined during its most recent November investor day, executives highlighted to investors its upcoming digital advertising initiatives, as the company starts displaying virtual billboards featuring content from brands such as Walmart and Warner Bros Discovery to users on its platform.

“As we layer in advertising and other forms of monetization, it is conceivable to imagine our booking per hour goes up in the U.S. and Canada because right now we’re not really fully tapped into the advertising market,” said Baszucki, noting that Roblox has also had, by the end of this most recent quarter, over 370 cumulative brand activations.

“There’s an interactive movie trailer on our platform, and the engagement of something like that is much more deep than what would typically happen with a video movie trailer. And we do expect the engagement of branded experiences to ultimately be very different than image, print, or video engagement,” added company executives.

Read more: Young Consumers Make Next-Level Purchases From In-Video-Game Stores

Leadership stressed that Roblox plans to build out the infrastructure for its ad platform this year and will start providing forecast for ad revenue in 2025.

“We’re thinking about advertising in 2025 as a nice incremental for the business but not one that is substantially driving the overall growth rate of the company,” said CFO Guthrie.

Roblox sits at what could be considered by observers to be an attractive intersection of the metaverse, the creator economy and artificial intelligence (AI).

And the company highlighted its upcoming strategy around AI on Thursday’s call.

“We have an enormous amount of data at Roblox. We have a lot of trust and safety data. We have a lot of people writing code and building 3D objects and creation data. And we’re more and more starting to lean into really building our own AI platform, built on this proprietary data in concert with all of our users,” Baszucki said.