Roblox's Earnings Review：There are Signs of a Turnaround from the Bottom

The financial report shows that Roblox Q1 revenue increased by 22% year-on-year to US$655.3 million, compared with market expectations of US$766 million; the net loss attributable to shareholders was US$268.3 million, compared with US$160.2 million in the same period last year, and the market expected a net loss of US$253 million. The basic and diluted loss per share were both US$0.44, compared with a loss of US$0.27 per share in the same period last year, and the market expected a loss of US$0.403.

First quarter bookings were $773.8 million, up 23% year-over-year, or 25% year-over-year in constant currency. Net cash flow from operating activities was $173.8 million.

Average daily active users (DAU) were 66.1 million, an increase of 22% year-over-year, and user engagement hours were 14.5 billion, an increase of 23% year-over-year. Average bookings per daily active user (ABPDAU) was $11.70, flat year-over-year, or up 2% year-over-year in constant currency.

Roblox Chief Financial Officer Michael Guthrie said the company will slow down the pace of investment in headcount and compensation spending, which creates operating leverage. And, the company also expects to see more bookings processed through credit and prepaid cards, which will have a positive impact on margins.

With regards to monetization upside, I would like to underscore the potential of RBLX' advertising opportunity, which I expect to launch in Q3 or Q4 2023: Investors should consider that Roblox users cumulatively spend approximately 60 billion hours on the platform annually (extrapolating March metrics and adding a reasonable growth estimate). Now, if we consider that for each hour of engagement Roblox could potentially deliver about five ad impressions, and each impression could reasonably be valued at 0.7 cents (as per Facebook ads), Roblox could potentially generate about $2.1 billion in incremental revenue from advertising alone. It's worth noting that this estimation does not take into account any potential user growth, which could further expand the platform's advertising revenue potential.

In terms of the delivery of advertisements, Roblox has for example the potential to incorporate them in the form of either billboards (simple impression) and/ or portals (immersive), which can lead users to experiences such as Vans World, NIKELAND, or Spotify Island.