"Roblox Continues Growth Momentum... Profitability Needs Verification"

[Asia Economy Reporter Minji Lee] Roblox continued its growth trend in the third quarter but failed to improve profitability. Securities experts advised a conservative approach until signs of profitability improvement emerge.

On the 13th, Roblox's stock price stood at $36.74, marking a decline of over 8% for the week. Despite growth stocks rising collectively due to expectations of changes in interest rate hike policies, the stock price dropped significantly following the disappointing earnings announcement on the 9th.

Roblox's total transaction volume in the third quarter was $720 million, a 10% increase compared to the same period last year, exceeding the market expectation of $683 million. The daily active users (DAU) averaged 58.8 million, up 24.3% year-over-year, continuing a growth streak for 10 consecutive quarters since 2020. The growth rate of users aged 13 and above increased by 34% compared to the previous year, diversifying the age range of the main user base.

However, costs relative to total transaction volume were 117%, slightly lower than before but still at a high level. This was due to increased costs from ongoing hiring and infrastructure investments. Free cash flow (FCF) was negative $67.7 million, widening the deficit compared to the second quarter and falling short of the market expectation of negative $58.6 million. Lee Youngjin, a researcher at Samsung Securities, said, “While growth indicators such as users, usage time, and total transaction volume show signs of recovery from the worst, continued investment for platform expansion has increased doubts about securing profitability.”

In conclusion, the key to stock price appreciation is profitability improvement. The fourth quarter is expected to see increased sales due to seasonal content like Halloween in October and the holiday season. The expected DAU for the fourth quarter is 60.3 million, a 2.9% increase year-over-year, and the DAU growth rate for users aged 13 and above is expected to be 29.3%, indicating continued expansion of the main user age group. Hyunji Park, a researcher at NH Investment & Securities, analyzed, “Although the daily active users account for only 4% of the global population, it is expected to increase by about 20% to 67.3 million in 2023.” Park added, “Users spend up to 2.5 hours daily on the platform, suggesting high potential for expanding revenue streams into various fields such as advertising and 3D-based shopping.” Immersive advertising sales are also being tested with a goal to launch next year.

However, leveraging effects are expected to be difficult. Jaegu Kang, a researcher at Hanwha Investment & Securities, said, “Roblox will not stop hiring until next year and will continue developer compensation and infrastructure security investments based on sufficient liquidity,” adding, “Due to increased investments, it will be difficult to expect leverage effects next year.”

This content was produced with the assistance of AI translation services.