Roblox Corporation

I would like to welcome everyone to the Roblox first quarter 2022 earnings conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, you can press star one once again. Thank you. And at this time, I would like to turn the conference over to Stephanie Natani, Director of Financial Communications. Ms. Natani, you may begin your conference.

Thank you, Abby. Good morning, everyone, and thank you for joining our Q&A session to discuss Roblox Q1 2022 results. With me today is Roblox's CEO, David Bezouki, and CFO, Mike Guthrie. Before we start, I want to remind everyone that yesterday after market close, We published a shareholder letter and earnings results on our investor relations website at ir.roblox.com. On this call, we will make some brief opening remarks and reserve the rest of the time for your questions. For our webcast participants, please note the question icon at the bottom of your screen where you can type in your questions. We'll do our best to take as many questions as possible in the time we have allotted today. On today's call, we may be making forward-looking statements, including but not limited to our expectations of our business, future financial results, and strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements. And such risks are described in our risk factors included in our SEC filings, including our Form 10-K filed for the fiscal year ended December 31st, 2021. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update forward-looking statements, except as required by law. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued yesterday, as well as in our supplemental slides. copies of which can be found on our investor relations website finally this call is being webcast and as a reminder for those participants you can enter your questions in the top right side of your screen the webcast will be archived on our website shortly afterwards with that i'll turn the call over to dave welcome everyone we welcome all of our investors and the roblox community

I'm going to share a few notes before we dive in on the Q&A, especially for those who maybe didn't deeply read our shareholder letter. Reiterating on our growth, daily active users were at 54 million for Q1, which was up 28% year over year and our highest ever. And our hours of engagement were up 22%. Bookings were at $631 million for Q1, which was 3% below Q1 of 2021. And I want to highlight we generated over $150 million of net cash and $100 million of free cash in Q1. March, we believe, was our most difficult month lapping COVID. And what is really exciting is all of the user gains generally we accrued during COVID we've kept. That said, as expected, really, our bookings are highly correlated with hours of engagement, and our hours have decreased in some cohorts as we've emerged from COVID. I'll give an example, which is the USA 9 through 12 cohort, which is an extremely dynamic part of our numbers. And pre-COVID, we had 2 million VAUs in the 9 through 12 cohort spending less than 5 million hours per week. In the middle of COVID, that jumped to 3 million VAUs in that same 9 through 12 cohort spending 10 million hours per week. We emerged from COVID with that same 3 million VAUs but now spending 8 million hours per week And once again, this is highly correlated bookings in our hours of engagement. It partially explains our year-on-year bookings number. For those of you that read our GAAP results, you'll notice that we're going to move to accruing revenue with an average user lifetime moving from 23 to 25 months. This will essentially increase the time we've smear out our revenue, but I want to highlight it could be interpreted as a sign of increased user retention, which is very positive for us. We have enormous headroom. even in the U.S. 9 through 12 cohort, because we have a lot of room on our frequency there. We do not share our NMAU numbers right now, but there's a lot of room there. I also want to highlight that in our 17 through 24 cohort, in the core markets, while lapping COVID, we are still seeing solid DAU growth numbers year on year. And in Q1 in core, we saw 6% year on year. Internationally, I want to highlight two countries. The first is India, which has enormous potential user activity. We saw in Q1 of 22, India grow 160% relative to Q1 of 2021 at under a million DAUs with a lot of headroom there. And then Japan, which is Our potential for enormous economic activity in Q1 of 22, we saw growth of 3X relative to Q1 of 21 with 183,000 BAUs. So that market is just in formation. We continue to drive innovation up and down our stack. And a couple of innovations that I'll share with you that have emerged in Q1 that we've talked about include spatial voice, our layered clothing and fashion system, our age verification system that is working hand-in-hand with spatial voice, We've introduced Roblox Cloud and the ability for developers to access really the whole backend of their experience through their own APIs if they so choose. We have migrated to our own internal Roblox Translate system that has shown better long-term engagement growth than other Translate providers we've used from the cloud. We've added a data center in India, which is part of the very rapid growth there, and has decreased latency by 50% in India. And we're in our first steps of our facial animation data in Roblox Studio now. We continue to believe that part of the long-term growth for our company is continuous innovation. And in addition to these, we have many more in the pipeline. We have shared in our shareholder letter the enormous opportunity for us to lean in on the efficient frontier on the economy on Roblox. And we are taking steps up and down our economy stack to nudge towards optimizing long-term retention and engagement with the revenue flowing through our system and the ability for our developers to build larger and larger teams as they recognize more economic activity. A few I'll highlight that are underway at Roblox include both on game experience discovery and marketplace discovery. We're well into projects there to balance long-term engagement and retention with the monetization of the various experiences. We're adding... validated accounts and including the ability for people to trust that the items they're buying are from the real Nike or the real bands. We are in the midst of shortly releasing the ability for brands and developers to boost their experiences through discovery on our homepage. And we started work on our immersive advertising system, which is really long-term division we've had for really a parallel economy that supports brands bringing traffic to their experiences. I want to highlight anything we do with advertising will be consistent with our values, will be consistent with the ages on our platform. will be consistent with all laws and regulations around advertising, but there is enormous economic opportunity here. And then just highlighting before we jump into the Q&A, and you'll have to excuse my voice as I go through this, we have a lot more great brand experiences, including the NFL, who launched NFL Tycoon, McLaren and Halo Yoga, American Eagle and Chipotle, who all launched experiences on our platform. And then on the music side, we hosted Grammy Week, we hosted the Brit Awards, We hosted David Guetta. And with Sony, we did the 2014 Golden Virtual Concert. As your CEO, I still just want to highlight in closing the bullishness we have within the company based on the ultimate size of this market. We have a very healthy amount of cash, even as we are in the midst of generating cash. We are unique in our developer community and the foundation of civility that we really rest our business on. And we have enormous network effects that drive our growth. So with that, thank you for joining us, and we'll move to Q&A.