Roblox presented a comprehensive plan to expand engagement and monetization through better innovation and execution on Investor Day.
While management didn’t divulge anything innovative, we found the presentation compelling.
However, the strategy still relies not only on execution, but also on the company’s ability to age its users while increasing the user base.
We maintain our fair value estimate of $ 75 per share and view the current price as an attractive entry point.
Roblox revealed that daily active users in August reached 59.9 million, up 24% year-over-year, with 4.7 billion engagement hours, up 18%.
Bookings estimated for the month reached $ 233-237 million, up 5-7% or 9-11% at constant exchange rates, a sequential drop from July levels.
August marks the third consecutive month of double-digit constant currency growth after four consecutive months of flat or declining sales, a positive sign that growth could continue after the coronavirus.
While previous investor presentations have focused on the potential of the metaverse in Roblox, management has kept most of the presentation focused on the unique immersive 3D experience that Roblox offers its users and creators.
The day saw a number of senior executives showing the rewards of the investments Roblox has made in its development software and infrastructure.
One of the main results of this investment is the focus on further monetizing its platform.
This includes recommending games with a higher monetization rate than competitor games with similar engagement levels.
The company has also launched experience guidelines that could allow the games to cater to older teens more explicitly.
Another tool to boost monetization will be adding immersive in-game ads next year.
Creators will control ad placement and Roblox will serve ads in real time, enabling timed or immediate advertising campaigns as well as brand advertising.
Roblox continues to add more tools and opportunities for creators to earn Robux.
The platform added layered clothing to the market in 2022 and plans to launch user-created facial expressions next year.
Designers will also be able to create limited editions or limited runs of items, creating artificial scarcity and leading to higher resale prices, which they will benefit from.
Opportunities for advertisers
While management said this would help individual creators, we think it’s more likely to help brands like Nike or Gucci to translate these real-world tactics into the virtual world.
In addition to Nike and Gucci, more than 100 brands have engaged with Roblox in the past couple of years, a number that is likely to grow rapidly not only for the old user base, but also for the addition of immersive ads.
Investments in infrastructure
On the infrastructure side, Roblox continues to invest in building and managing its network, which now includes two primary data centers in the United States, 24 edge data centers around the world, over 15,600 servers, and 3.1 terabytes of bandwidth per according to.
Management continues to believe that running the Roblox platform on non-public networks allows for better performance and stability, resulting in greater engagement.
The higher performance also allows for higher quality graphics and a better game engine for creators.
Roblox showed more impressive in-game graphics and physics coming from the studio side.
However, the quality remains good not only on the new high-end Xbox and PlayStation consoles, but also on the older Nintendo Switch powered by a mobile chip.
While Roblox plans to compete directly with consoles and PCs for the over 17s, the underlying graphics and physics engines will still need major improvements.
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