Roblox Wins Across Several Metrics But Profitability Is Not Around The Corner

Fueled by strong gaming demand, Roblox Corporation RBLX, an online multiplayer game where players build their own games and socialize with friends, published its quarterly daily active users count reached a new record, resulting in higher revenue but also sharper than expected results. 

Confirmation Of A Gaming Sector Rebound

Roblox’s results followed good news from videogame publisher Electronic Arts Inc EA and game maker Activision Blizzard Inc ATVI who is waiting on European regulators to approve its deal with Microsoft Inc MSFT, altogether confirming that the gaming sector is rebounding after a slowdown that shaped 2022. Electronic Arts literally crushed the March quarter expectations and guided for higher earnings in the year ahead. FIFA, the game, provided Electronic Arts with one last win before the end of their iconic publishing relationship as revenue of the series rose 31% compared to last year’s quarter. Electronic Arts wrapped a successful fiscal year, bringing in revenue of $7.4 billion with a YoY increase of 6%.

After UK regulators blocked its deal with Microsoft, Activision Blizzard reported massive profits from mobile games and Call of Duty. The latest reported revealed how lucrative the franchises under the Activision Blizzard umbrella are. If Microsoft succeeds to add Activision Blizzard to its Xbox brand, one can only imagine the possibilities one of the biggest deals in the history of gaming would bring. But despite the recent setback from regulators, Activision is also doing more than fine on its own, earning $2.38 billion in revenue and a profit of $740 million in its latest quarter.

Mixed Quarter Results

Both revenue and daily active users during the first quarter rose about 22% YoY. Revenue or bookings amounted to $774 million and topped the $766 million that Refinitiv expected a record all-time high number of 66 million users. Engagement also rose 23% measured as total hours spent in the game amounted to 14.5 billion. Founder and CEO David Baszucki attributed the bookings growth to eight quarters of exemplary innovation and engineering.

But despite these expansions, losses were sharper than expected as net loss amounted to $268.3 million or 44 cents per share. According to Reuters, the losses are owed to developer exchange fees, personnel costs, and infrastructure expenses.

A Leading Position In The Metaverse

According to a report by JP Morgan, metaverse brings an opportunity of $1 trillion in revenue. While this is a young industry at its inception and with Meta Platforms META aiming to be the synonym for this new virtual universe, it is Roblox who has a first-mover advantage in the game. While metaverse has been the obsession of Meta founder and CEO, Mark Zuckerberg, the latest earnings report had many wondering if this dream has been silently put to sleep as the social media company focused on showing off its AI progress. As Meta showed it is trying to play catch up with Microsoft and Google, Roblox is already in the metaverse. Last September, already 21 million people have visited the virtual world it created for Nike Inc NKE. Nikeland is one of the first proofs of mainstream metaverse concepts and it remains to this day a rare ‘tangible’ proof of this new reality. 

Moreover, while Meta, Microsoft and others are conducting mass layoffs, Roblox continued to increase headcount on its growth path. Bookings growth is expected to exceed compensation growth in the beginning in the first fiscal quarter of 2024, moving forward on that trajectory. 

 However, there’s also the fact that the metaverse is still far from reaching the mainstream, so the risk lies in whether this promise will be able to grow to its full potential. Additionally, with the competition intensifying and the tech sector being most prone to disruptors, one of its peers could potentially dethrone Roblox from its leading market position. 

Even The Virtual World Isn't All That Dreamy

With a solid cash position of $3 billion, Roblox has plenty of firepower to continue growing. To continue on its growth trajectory, Roblox needs to continue growing its users base and therefore, maintain its virtual cycle of ever-growing developers and continue producing high-quality content.

But even after operating its platform for over a decade, the company remains unprofitable. In fact, its 2022 net loss came close to $924 million due to accelerated growth efforts so profitability is not around the corner. By showing a revenue growth of 292% from 2019’s fourth quarter ($147.6 million) to 2022’s fourth quarter ($579 million), it has a proven growth playbook to execute on. But the metaverse is still a risky bet for everyone playing the game, even Meta.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.