Roblox Corporation

Good morning. My name is Amy and I will be your conference operator for today. At this time, I would like to welcome everyone to the Roblox Third Quarter 2024 Earnings Conference Call. 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 followed by the number one on the telephone keypad. to be placed into the queue. If you would like to withdraw your question, again, you may press star and the number one. It is now my pleasure to turn the call over to Stephanie Notany. You may begin your conference call.

Thank you, Amy. Good morning, everyone. Thank you for joining our Q&A session to discuss Roblox's Q3 2024 results. With me today is Roblox co-founder and CEO, David Buzuki, and CFO, Mike Guthrie. Our shareholder letter, press release, SEC filings, supplemental slides, and a replay of today's call can be found on our investor relations website. Our commentary today may include forward-looking statements, which are subject to risk, uncertainties, and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these risks, uncertainties, and assumptions are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. You should not rely on our forward-looking statements as predictions of future events. We disclaim any obligation to update these 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 can be found in our press release and supplemental slides. With that, I'll turn the call over to Dave.

Thank you. Good morning, everyone, and thank you for joining us today. We're excited to share our outstanding Q3 results, but before we get into our numbers, which are included in our shareholder letter and in our 10Q that we filed today, I want to take a step back and talk about what we're trying to accomplish at Roblox. Our mission is to connect 1 billion people with optimism and civility. We believe this is an admirable mission. And over the years, I've had an untold number of parents, users, and developers reach out to share the enormous impact that Roblox has had on their lives. This is personal to me because I've had several people share with me that their kids are literally alive today because of the connections they've made on Roblox. Contributing to online civility is challenging, but it's very much needed and we believe we can have an outsized impact. And this is even more important today. Since the earliest days of Roblox, it was clear to Eric and to me that safety would be paramount. And so building safety into our product has been a huge effort for almost 20 years. We have every incentive to prevent bad behavior on our platform. Our approach to safety includes multiple proactive measures, as well as parental controls. And we partner with leading safety organizations around the world. Even one person having a bad experience on our platform is too many, and thus we continue to invest heavily. We've shipped over 30 improvements to our safety and policy systems this year to date. And for example, in Q3, we reduced toxicity in voice chat through our improved nudging models. We gave our developers improved tools to moderate their own experiences. We launched major improvements in agent training to improve accuracy of our moderation for voice chat and image moderation. And we introduced numerous improvements in our internal tooling to increase the overall quality and throughput of our moderation and support systems. Enhancing moderation and safety systems with artificial intelligence is an exciting tool we have to combat bad actors. For example, our internally developed voice safety model, which we have now open sourced to the world on Hugging Face, has been downloaded over 10,000 times and is being adopted by numerous other organizations. As part of achieving our mission, we'll never stop working to make Roblox as safe and civil as possible, and this goes all the way to the core of our values. One of our core values is respect the community. We consider our impact on the world. We strive to make decisions with everyone's best interests in mind and to communicate authentically. We prioritize our community, including users and investors above the company. And when we report our results to investors, we strive to be accurate, consistent, and transparent. so that investors have the information they need to make decisions. We also do our best to make that communication as clear as possible to everyone. And as you very well know, another core value of Roblox is to take the long view. This means we drive innovation by setting a long-term vision. We do our best to optimize the long term in accordance with driving enterprise value, and as a result, We're willing to focus on hard problems if these can lead towards significant longer-term gains. We announced at RDC in September our goal of 10% of the world's gaming software market running on Roblox. We believe this is achievable, and we're now mapping our plan towards supporting the content that will drive this. And now, turning to Q3 results, I'm really pleased to share our Q3. We delivered high growth across our key financial and operational metrics. And we surpassed the guidance we provided on our Q2 earnings call. Revenue in Q3 was $919 million. That was up 29% year on year. And ahead of our guidance, we gave last quarter of between $860 and $885. Our Q3 bookings were $1.129 billion. This grew even faster at 34% year-on-year. This was ahead of our guidance of 1 to 1.025 billion. We had record DAUs of 88.9 million. This was up 27% year-on-year and strong across all regions. We had huge improvements year-on-year in US and Canada, up 26% year-on-year. And in APAC, up 37% year-on-year. A few countries will call out. Japan, DAUs grew 59% year-on-year. India DAUs grew 55% year-on-year. Over 13 DAUs were particularly strong, with 34% year-on-year growth. And now over 60% of our total DAUs are over 13. We also had record hours engaged at 20.7 billion hours in the quarter. This was up 29% year on year. Biggest growth improvements included U.S. and Canada up 28% year on year, APAC up 45% year on year, Japan hours engaged grew 69% year on year, and India grew 57% year on year. We also manage costs in Q3 of 2024. Our developer exchange fees were $231.5 million. This was an all-time high, reflecting our commitment to creators. This increased 36% year-on-year. Our infra trust and safety costs were up 4% year-on-year and 6% versus Q2. I want to highlight that this increase versus Q2 is driven by investments in AI, and this includes migrating more and more of our safety infrastructure to AI where possible and where responsible to do so. In the process, we are continuing to improve the quality of both our content and communication safety systems. 14% of revenue and 11% of bookings went to InfraTrust and Safety compared to the previous year. And it showcases the ability to put leverage into our strong top line. Personnel costs exclusive of stock-based comp were $202.2 million. This was 22% of revenue and 18% of bookings. This decrease compared to the previous year as both a percent of revenue and bookings. Through this combination of thoughtful cost management and robust top line growth, our Q3 cash from operations was $247.4 million. This was up 120% year on year. This was better than our guidance of $147 to $162 million. Our Q3 cash flow was $218 million, free cash flow up to 66%, and better than our guidance of $105 to $120 million. We're confident on our strategy and the long-term growth of the Roblox platform. I want to highlight a few key initiatives that fueled the quarter's outstanding performance. Since Q1, we've been highlighting our focus on search and discovery. We've made enhancements to our AI-powered discovery algorithms. We've improved personalization, and we continue to show more relevant experiences to our users. We've continued to improve our virtual economy and marketplace. We've introduced dynamic price floors, UGC for everyone on the platform, And we've launched inexperienced price optimization for all creators now just in the last month. On overall systems performance, continued improvements in our app launch times, continued reduction in crash rates, and we continue to increase frame rate and app quality across all platforms. And finally, happy Halloween, everyone. We're in the middle of The Haunt, one of our LiveOps events. that are attracting new users and really, in the case of the haunt, showing off new technology, including image capture inside of Roblox. As we go through our shareholder letter, I wanted to share a few developments we're seeing on the platform. First is our dev community is publishing more significant content updates compared to last year. And we believe this is further driving DAUs. We're seeing more content updates and a faster cadence of content. We're also seeing experiences that are continuing to go viral, really. In Q3 of 2024, we saw experiences like Rivals and Dressed to Impress. Rivals is a team-based shooter. Dressed to Impress is a dress-up experience, really go viral around the world. We're seeing success as we see more experiences and emerging genres show up on the platform. We've also seen a distribution of experience and spending on the platform. Spending growth is more evenly distributed among the top experiences in Q3. Relative to brands on the platform, we welcome the NFL. They license their IP on NFL Universe Football. This was the 32nd highest experience by spend from their launch in September 13, and it's continuing to rise in October. As far as our partnerships, DoubleVerify for standard measurement is live now. We've added WPP to accelerate brand education, and we have announced our integration with Shopify. At RDC, In September, we highlighted our goal of 10% of the world's gaming software market revenue flowing through Roblox, and we shared this with our community. This is a market we currently estimate at $180 billion. We have enormous headroom here. We're currently at less than 3% of our TAM in the gaming market space. And we shared our strategy for getting there. We shared our mapping of genres on the platform. We have great traction in genres like simulation, role play, and action. But we also have the opportunity for enormous growth in genres like sports and racing, shooters, and open world RPG. We'd like to double our market share in sports and racing on our platform. triple it in shooters, including Battle Royale, and double it in open world and RPG share, for example. The roadmap for doing this is evolving our platform tech to support all of these genres really at higher performance and fidelity, increasing our developers' opportunities for economics, including rewarded video and other expansions of our econ system, and amplifying creator growth through off-platform organic and paid acquisition in addition to the organic growth that's driven our platform. I want to highlight where we're going with AI. It's really at the heart of our safety systems and more and more at the heart of everything we're doing on Roblox. We announced a 3D foundational model that we're building at RDC and an open source 3D AI generative model. We're going to be starting with inexperienced object creation and evolving to scene creation. And we're already using AI on our Roblox Assistant, Code Assist, and our material and text generation. We also use, of course, AI extensively for safety and discovery throughout the platform. Finally, our keynote from the RDC Roblox Developer Conference last month is available online. And for anyone who would like to see our technical roadmap, I invite you to go check out our RDC keynote. With that, I'll hand it over to Mike.