Investors eager for Roblox to tap alternative revenue streams will have to wait a little longer.
CEO David Baszucki said advertising “will not be material this year” during the company’s Q1 earnings call on Thursday.
Roblox’s other business metrics didn’t allay concerns about its lack of major revenue streams beyond digital in-app purchases, which is its primary money-maker. The company is building an ad platform, but it could be years before it reaches maturity, Baszucki said.
While Roblox is growing overall, its Q1 growth indicators fell short of the lofty 20% goals the company set for itself at its investor event in November.
As a result, Roblox’s share price slid by about 20% after its earnings report.
Not hitting the mark
To be clear, Roblox isn’t stagnating or shrinking. It just isn’t growing as quickly as it said it would.
The company’s Q1 revenue was $801.3 million, up 22% YOY. Some companies would kill for that growth rate.
But revenue was the only metric that beat the 20% growth target Roblox set for revenue, bookings, daily active users (DAU) and hours spent.
DAUs grew to 77 million, a 17% YOY increase, while hours engaged totaled 16.7 billion for the quarter, up 15%.
And bookings, which reflect binding agreements in which money has yet to change hands, totaled $923.8 million, up 19%. In Roblox’s case, this figure mostly reflects sales of its virtual currency, called Robux, that have yet to be spent in-platform. (Users can buy the virtual currency directly from Roblox or other vendors, but Roblox doesn’t count it as revenue until the user actually spends the currency.)
The lower-than-expected growth rate for bookings has investors spooked over a possible slowdown in consumer spending. That slowdown, plus fears that Roblox isn’t propping up new revenue streams fast enough, likely caused the stock price slide.
And while advertising could eventually be a new source of growth, updates on Roblox’s nascent ad business were hard to come by in this earnings report.
Building the ads business
Since Roblox’s ad platform is just getting off the ground, its full impact has yet to be reflected in its overall business.
The company did not split out exactly how much of its bookings or revenue come from ads, though it is building a foundation for future growth.
Roblox just started offering in-game ad placements last year, and it opened its in-game video ad inventory to programmatic demand earlier this month.
Baszucki highlighted how Roblox is putting the pieces in place to appeal to programmatic advertisers, noting a demand partnership with PubMatic and a brand lift measurement deal with Kantar Context Lab. He also shouted out David Vespe, a former engineering lead at Google, who Roblox hired to lead its ad tech engineering team.
Roblox also revealed this month that it partnered with Walmart on a real-world shopping solution hosted on its virtual platform. This test campaign was the first step toward building an ecommerce solution for physical purchases that can complement Roblox’s existing marketplace for digital purchases.
“We have a lot more of these tests rolling out,” Baszucki said.
These investments are starting to bring more advertisers into the fold. Since 2019, Roblox has completed 370 brand activations. Those campaigns included both in-game ads and the custom metaverse-like experiences that have long been associated with Roblox.
But the success of Roblox’s advertising platform depends on its ability to grow its over-13 audience since it won’t serve ads to users younger than 13.
The numbers were encouraging, with over-13 DAUs growing by 22% YOY, meaning it is actually outpacing the growth rate of its overall audience. But it will be some time before advertising becomes a key growth driver for Roblox.
The company will offer guidance on its expectations for advertising growth starting at the beginning of 2025, Baszucki said in response to an investor question.
“We’re thinking about advertising in 2025 as a nice increment to the business, but not one that is substantially driving the overall growth rate of the company,” he said. “It will eventually be contributing to the overall growth rate, but that would be more in 2026 or 2027.”
Update 5/10/24: This story originally said Roblox completed 370 brand activations in Q1 2024. After publication, a Roblox spokesperson clarified that the company has completed 370 brand activations since 2019.
