To The Moon

Overview: 

Roblox is the #1 mobile game in terms of downloads, the #1 game on PC by monthly active users (MAUs), the #4 game on Xbox by MAUs, and ranks #5 on PlayStation 5 by MAUs. This widespread dominance across various gaming platforms underscores its significant popularity in the gaming community.

Roblox has shown robust growth in Q3, exceeding expectations set in the previous earnings call. 

Roblox aims to become a dating app for adults aged 17 and above. It also plans to integrate a full K-12 curriculum, including language classes with schools from other countries and virtual field trips.

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Here's a detailed look at the fundamental performance:

Financial Performance:

Revenue: Achieved $919m , a 29% increase year-over-year, indicating strong demand for Roblox's platform.

Bookings: Recorded at $1.129b, up by 34% from the previous year, suggesting even faster growth in user engagement and monetization.

Cash Flow and Liquidity:

Operating Cash Flow: Increased significantly from $28.4 million to $247.4 million over five quarters, showcasing effective operational management.

Free Cash Flow: Turned positive from a negative $95.5 million to $218 million, indicating improved profitability and cash generation. Management is aiming for the free cash flow at the end of 2024 to reach a record between $621 million and $636 million.

Cash Position: Now at $4 billion with $3 billion in net cash, supporting a strong balance sheet. This financial strength was recognized with a credit rating upgrade by Moody's to Ba1, in line with S&P's previous action.

Profitability:

Roblox Corporation's profitability is notably affected by its substantial stock-based compensation (SBC), which makes up about one-third of its revenue. Although SBC is a non-cash expense that improves operating cash flow, it significantly dilutes earnings, pushing back the achievement of positive operating income. Critics argue that this level of SBC is excessive when compared to industry standards, raising questions about the long-term viability of Roblox's strategy that favors growth over profitability.

Market Potential:

Roblox has set its sights on securing 10% of the global gaming software market, which is currently worth $180 billion. With their market share presently under 3%, they have pledged to achieve a 20% growth annually, aiming to potentially triple their market footprint within the next three years.

User Engagement:

DAUs (Daily Active Users): Hit a record high of 88.9 million, a 27% increase year-over-year, with significant growth in key markets like Japan (59% increase) and India (55% increase).

User Engagement: Hours engaged rose to 20.7 billion, up 29% year-over-year, reflecting deep user involvement across regions.

Operational Efficiency:

Cost Management: Developer exchange fees reached $231.5 million, yet as a percentage of revenue and bookings, costs have decreased, demonstrating efficient cost control.

Strategic Developments:

AI and Discovery: Enhanced algorithms for personalization and relevance have improved user experiences.

Virtual Economy: New features like Dynamic Price Floors and UGC for all users are set to boost both user and creator value.

AI Innovations: Moving towards AI-driven creation with plans for text and voice prompt clothing design in virtual spaces, aiming to revolutionize user interaction.

Future Growth Drivers:

Advertising and Monetization: New mechanisms like paid sponsored tiles, search advertising, and video ads are being rolled out, complementing existing traffic systems.

Platform Expansion: Introduction on PlayStation, alongside long-standing availability on Xbox, expands market reach.

Partnerships: The Shopify partnership enables in-game and physical product sales, potentially adding new revenue streams.

The advancement of VR/AR devices, such as the Apple Vision Pro, Ray-Ban Meta Advanced Smart Glasses, and Meta Quest 3, could reignite interest in the metaverse, with Roblox emerging as a compelling platform. Leveraging Roblox for virtual meetings and recruitment processes—including pre-onboarding experiences, job simulations, On Job Training, virtual career fairs, and 3D interviews—offers an innovative approach to enhance engagement and deliver unique, immersive experiences.

Outlook:

Roblox projects continued growth at a 20% rate into 2027, underpinned by ongoing improvements in monetization, user base expansion, and platform enhancements.

Investment Considerations:

Strong financial growth metrics, substantial market potential, and strategic initiatives suggest a positive outlook for Roblox. However, investors should monitor the execution of new monetization strategies and the scalability of AI features in driving user engagement and revenue.

This analysis indicates that Roblox is not only maintaining its growth trajectory but also setting the stage for further expansion through technological innovation and market strategy.

As of early 2025, Whale Rock Capital Management manages approximately $9 billion in assets. 

 The firm's flagship fund achieved a 51% gain in 2024, prompting plans to reopen the fund in early 2025 to raise an additional $200 to $300 million.

Management is building stakes on Roblox. The firm, led by Alex Sacerdote, is recognized for its in-depth research process, which evaluates both financial performance and qualitative factors such as management quality, market position, and innovation. Whale Rock conducts extensive due diligence, engaging with executives and attending industry events to inform its investment decisions.

Key institutional shareholders that own significant stakes in Roblox Corporation (RBLX):

Altos Ventures Management Inc. holds one of the largest shares, with an ownership stake noted at around 8.4% to 8.7% of the company's shares as of various reports in 2024.

Vanguard Group Inc. is another major shareholder, with shares representing about 5.1% to 5.9% of Roblox's total shares.

Morgan Stanley also holds a significant share, with ownership around 5.9%.

Baillie Gifford & Co is listed among the top institutional investors with a notable stake.

BlackRock Inc. is another major institutional investor with a considerable shareholding.

Fmr Llc (Fidelity Management & Research Company) also owns a significant portion of Roblox shares.

Temasek Holdings (Private) Ltd has a stake in Roblox, though exact percentages can vary.

ARK Investment Management LLC, known for its interest in innovative technology companies, holds shares in Roblox.

Dragoneer Investment Group, LLC is also among the significant shareholders.

These institutional investors collectively control a large portion of Roblox, with institutional ownership ranging between 56% to 66% of the company's shares, depending on the exact date and source of the data. This information reflects the ownership landscape as of early to mid-2024, with changes in ownership possible since then.

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