Roblox Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Roblox operates a user-generated 3D social experiences platform, monetized primarily through sales of Robux and virtual items. Unless noted, amounts below are USD millions.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $454.1 | $200.4 | $841.1 | $362.0 |
| Bookings (non-GAAP) | $665.5 | $494.2 | $1,317.8 | $743.7 |
| Operating loss | $(142.9) | $(73.0) | $(278.0) | $(146.0) |
| Net loss attributable to common stockholders | $(140.1) | $(71.5) | $(274.4) | $(145.9) |
| Operating margin | (31)% | (36)% | (33)% | (40)% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $355.7 | $160.1 |
| Free cash flow (company-defined) | Not provided for quarter | Not provided for quarter | $310.1 | $133.3 |
Q2 revenue grew 127% year over year; bookings grew 35%. Six-month revenue grew 132%, and bookings grew 77%. Bookings are a non-GAAP measure of sales activity; most virtual-item revenue is recognized over time, with the estimated paying-user lifetime at 23 months. Q2 average DAUs were 43.2 million. Daily paying users increased 26% year over year to approximately 676,000 in Q2; bookings per daily paying user increased 7%.
Q2 costs and expenses totaled $597.0 million, or 131% of revenue. Notable expense ratios were developer exchange fees 29%, infrastructure and trust and safety 24%, research and development 27%, and general and administrative 22% of revenue. Stock-based compensation was $81.7 million in Q2 and $132.4 million for the first half, versus $7.4 million and $49.7 million in the comparable 2020 periods.
Six-month operating cash flow benefited substantially from a $484.9 million increase in deferred revenue, partly offset by $107.9 million in deferred cost of revenue. Free cash flow is defined by Roblox as operating cash flow less purchases of property, equipment, and intangible assets.
Liquidity, debt, and balance sheet
Cash and cash equivalents were $1,780.3 million at June 30, 2021, compared with $893.9 million at year-end 2020. Current assets were $2,394.3 million and current liabilities were $1,772.0 million. Deferred revenue totaled approximately $2,039.9 million, including $1,488.2 million current. The company reported no borrowings; it terminated its unused $50 million revolving credit facility in February 2021. Six-month financing cash flow included $534.3 million of net proceeds from a January preferred-stock placement and $41.9 million from option exercises.
Material changes and unusual items
- Revenue growth was attributed mainly to more daily paying users. Management noted that pandemic-related shelter-in-place measures contributed to user and bookings growth and that growth had begun moderating in some markets.
- Q2 general and administrative expense rose 422% year over year. The company cited professional-services costs, including an accrual related to the music publishers’ lawsuit and other litigation, and $50.4 million of settlement costs finalized during the quarter. First-half expense also included $50.7 million of one-time direct-listing costs.
- All outstanding convertible preferred stock converted into Class A common stock upon the March 2021 direct listing. Roblox also issued $534.3 million net proceeds of Series H preferred stock in January.
- Operating lease accounting adoption added right-of-use assets and lease liabilities to the balance sheet. At June 30, operating lease liabilities were $251.7 million in total, including $45.3 million current; additional executed leases not yet commenced carried $94.1 million of minimum commitments.
Outlook, risks, and contingencies
- No quantified financial guidance was provided. Management expects operating losses and expense growth to continue as it invests in people, platform development, infrastructure, trust and safety, and public-company requirements. It believes cash and operating cash flow will meet needs for at least 12 months.
- Management cautioned that pandemic-driven engagement and monetization may not persist; reopening, seasonality, and comparisons with pandemic-affected periods could affect growth. Roblox expects infrastructure, research and development, general and administrative, and developer exchange costs to rise in absolute dollars.
- A lawsuit filed in June 2021 by music publishers, including Universal Music Corp., alleges copyright infringement. The company disputes the claims. Litigation accruals for matters considered probable and reasonably estimable totaled $41.0 million; the maximum possible loss or range was not estimable.
- Disclosure controls were deemed ineffective because of a previously identified material weakness in controls over revenue-recognition performance obligations. Remediation was ongoing; management performed additional review procedures and stated the financial statements were fairly presented in all material respects.
- Key risks include child safety and content moderation, privacy and data security, changing international regulation, reliance on mobile app stores and payment channels, and growth normalization. Apple and Google each accounted for significant Robux sales; their app-store fees and policies could affect economics and access.
- After quarter-end, Roblox signed an agreement to acquire Guilded for approximately $90 million in cash and stock; the acquisition closed August 16, 2021.
Most important facts for investors to verify
- How DAUs, bookings, paying users, and engagement trends evolve as pandemic-related conditions normalize; company operating metrics are internally measured and not independently validated.
- Whether bookings growth translates into recognized revenue and sustainable cash generation, given deferred revenue recognition over an estimated 23-month paying-user lifetime.
- The extent and timing of litigation costs, including the NMPA lawsuit, and whether the $41.0 million accrual remains adequate as cases progress.
- Progress in remediating the revenue-recognition control weakness and restoring effective disclosure controls.
- Future stock-based compensation, including the CEO performance award, and resulting expense and dilution; confirm the accounting and integration effects of the Guilded acquisition.