Roblox, the popular online gaming platform, experienced a significant stock plunge of over 20% following the release of its Q2 2023 financial results. While the company managed to increase its bookings by 1% compared to the previous quarter, reaching $780.7 million, it fell short of analysts’ expectations for playtime and Daily Active Users (DAUs).
In the last quarter, Roblox users spent a total of 14 billion hours on the platform, which unfortunately missed analysts’ estimated playtime of 14.4 billion hours. Additionally, the number of DAUs decreased by about 1% to 65.5 million, failing to meet the projected 65.8 million DAUs.
Notably, Roblox observed a slightly larger percentage of users over the age of 13 in its player base, accounting for 56%, compared to the same period in 2022 when it stood at 53%. Year-on-year, the growth rate for users under 13 was 17%, while users over 13 grew by 33%. This demographic shift is somewhat advantageous as older users tend to spend more time on average playing the games.
Despite the slight growth in bookings and revenue (up 4% quarter-over-quarter), increased costs became a significant burden for Roblox. The company’s costs surged by 31% or $233.3 million compared to Q2 2022, which ultimately affected its profit margins. The average bookings per DAU also decreased by 3% to $11.92, compared to the same quarter last year, although it did show improvement from Q1’s $11.70.
One of the contributing factors to the rising costs is the increase in headcount. Roblox currently employs approximately 2,400 individuals, which is around 500 more employees compared to the same quarter last year. Consequently, personnel costs, excluding stock-based compensation, now account for 30% of revenue or 26% of bookings. This represents a significant increase from Q2 2022, where these expenditures represented 24% of revenue or 22% of bookings.
Another cost that has seen a substantial increase for Roblox is stock-based compensation, which rose by 45% to $212.4 million compared to the same quarter last year. The most significant increases in stock-based compensation were observed in Infrastructure and trust & safety (up 66%) and Research and development (up 58%).
Given Roblox’s commitment to safety and its growing focus on artificial intelligence (AI), it is likely that the company has been hiring top talent through lucrative stock packages. However, the declining stock price may impact the attractiveness of these compensation packages for employees.
These results depict a concerning trend for Roblox, particularly with regards to missing analyst expectations and the subsequent decline in stock prices. The company will need to address these issues and find ways to increase user engagement, playtime, and DAUs in order to regain investor confidence and stabilize its stock value.
