Software crashed together? Roblox (RBLX.US): It has an ecological closed-loop, Genie can't break.

Roblox (RBLX.US) released its fourth quarter performance for the 2025 fiscal year before the US stock market on February 5th. The overall Q4 performance is generally positive, although not explosive, it has helped to alleviate the long-standing market sentiment, allowing some release. 1. The biggest highlight - Bookings exceeded expectations: Q4 revenue increased by 63%, although it slowed down compared to the peak of Q3, it exceeded market expectations. At the same time, the company's guidance for Q1 (+50% to 54%) and the full year 2026 (+22% to 26%) also exceeded expectations. For Roblox, revenue is more forward-looking than income, so it is more worth paying attention to. This time, both Q4 and the guidance for Q1 this year exceeded expectations. Previously, the market was concerned about the high base pressure this year, expecting revenue growth to be lower than the long-term guidance of 20%. The actual guidance is better, especially considering the management's consistent conservative guidance style, so the actual performance may be even better, which will provide a clear boost to sentiment. 2. Worries eased - User ecosystem health: The main reason that caused Roblox's continuous decline from November to Genie's impact was the several explosive games from Q2 to Q3. With students returning to school in the back-to-school season, the popularity quickly declined. Third-party monitoring platforms showed a nearly 40% decline in user engagement in Q4 (simultaneously online users), leading to concerns about the sustainability of high growth in the market. In reality, the situation is not as bad. Q4 daily active users increased by 69%, total playtime increased by 88%, and the average playtime per person also increased by 11% year-on-year. Although the decline rate (11%) from the previous quarter is slightly higher than in previous years (3% to 9%), Q3 of 2025, especially during the summer vacation, saw a rapid peak, and combined with the fact that Q4 is the back-to-school season, this cooling trend is acceptable. 3. Deepening monetization, focusing on advertising progress: The high revenue growth is mainly reflected in users spending money to buy Robux, and commercial advertising started last year. In the short term, ads may lower the average revenue per user, reflected in a year-on-year decrease calculated from the total Bookings. Nevertheless, this will reduce the pressure of relying solely on user payments. Monthly paying users on the platform are increasing, further enhancing the overall economic ecosystem. 4. Continued increase in developer revenue sharing: The developer revenue sharing rate in Q4 continued to increase. However, in September last year, Roblox increased developer revenue sharing fees by 8.5%, from 35% of Robux earnings after transactions to 38%. The Dolphin has always appreciated this practice since covering Roblox early on as it benefits developers and helps truly expand the ecosystem. The calculated Covenant adj. EBITDA was 690 million, exceeding the consensus expectation of 100 million, accounting for 31% of revenue share, with improvements both compared to the previous quarter and year-on-year. The company's guidance for the full year 2026 profit margin (Covenant adj. EBITDA/Bookings) is 25%, down nearly 1 percentage point from 2025. The company had already hinted at this last quarter, so the new market expectations have already factored in this trend. The expected decline in profit margin is mainly due to two factors: 1) being conservative about how many explosive games can be produced this year. Last year saw 4-5 new hit games, this year the market's expectations range from 1-3 games. With fewer hit games, Bookings will be affected, and Roblox has many fixed expenses, hence profit margins will be squeezed; 2) increasing developer revenue sharing. These are necessary expenses to expand the ecosystem. 5. Steady improvement in cash flow: Q4 free cash flow accelerated to 7.5 billion, a 150% year-on-year increase, accounting for 22% of current Bookings, meaning that approximately 22 dollars will be retained within the company for every 100 dollars entering the platform after deducting basic operational expenses. By the end of the year, the company had 4.54 billion net cash, with 3.1 billion in cash available for use within the next year. 6. Financial indicators overview Dolphin Research's Viewpoint As a growth stock, Roblox is believed to realize its monetization potential comprehensively in the future by the market. However, in the short term, the market will still trade based on high-frequency fluctuations in user engagement - changes in the platform's daily simultaneous online users. In the second and third quarters of last year, the consecutive release and rapid popularity of several hit games like "Grow a Garden", "99 Nights in the Forest", "Steal a Brainrot", and "Plants Vs. Brainrot" directly boosted the stock price upwards. Conversely, with the cooling of the hit games, the new rookie "Escape Tsunami", launched in December, while gaining some popularity, was not able to attract as many new users as the "predecessors" did initially (one-week new users: 2 million vs. over 5 million), resulting in an overall decline in the platform's "simultaneous online users" (a nearly 40% decline) in the fourth quarter. Although hit games come and go quickly (due to the lack of experience in long-term operation among small and medium-sized developers), what Dolphin sees is that the stickiness of the Roblox platform is increasing - the proportion of simultaneous online users (CCU) to DAU has been increasing, even during the fourth quarter when hit games were cooling off. This indicates that loyal users seem to have not left Roblox due to the drop in hit game popularity or back-to-school season. The reason the market trades high-frequency data is fundamentally due to the previous overvaluation, thus attracting more short-term speculative funds. They naturally focus more on high-frequency operational indicators. While Roblox has already crossed the early growth period that can transcend seasonal changes, it is still in a high growth phase currently. It needs to acknowledge seasonal and even higher frequency fluctuations. As we have said before, we are bullish on the long-term ecosystem of Roblox, but in the short term, there is still a contradiction between being a good company and having a good valuation. After the chaos in the gaming stock market caused by Genie, from a midterm perspective, Dolphin believes that the current valuation (yesterday's closing market value of 42.5 billion, corresponding to 18x EV/Convenant Adj.EBITDA in 2026, given management's consistent conservatism, we will increase the expectations by 10%) has fallen to a level where it could attract some patient funds to start paying attention. It is worth noting that although the current market value is lower than what we consider a fair valuation, sentiments in the software sector are currently weak. Therefore, it is best to wait until the grand narrative of AI fades and sentiment stops deteriorating, otherwise more safety buffers will need to be provided. Below are detailed data for Roblox I. User indicators: After the baptism of hit games, stickiness increases, and the ecosystem stabilizes and expands In the fourth quarter, DAU continued to grow by 69% year-on-year to 144 million, but net decreased compared to the previous quarter due to the back-to-school season and the decline in the popularity of hit games. User engagement total time is also affected by seasonal fluctuations, down 11% from the previous quarter, but still showing increased momentum compared to last year, with an 88% year-on-year increase. On average per user, the growth compared to last year also increased by 12%, indicating an overall enhancement of platform stickiness. II. Platform monetization: Revenue exceeds expectations Roblox Bookings revenue, which is the amount actually paid by users in the current period, reflects the platform's monetization capabilities more accurately than income since income is adjusted based on revenue and a confirmation formula (non-consumables are deferred based on the user's existence cycle on the platform, while one-time consumables are confirmed in the current period). Bookings in the fourth quarter increased by 63% year-on-year. After confirming a portion of the revenue for the period, there is still 6.5 billion to be deferred, with 4.2 billion needing to be confirmed within a year. The company's guidance for Q1 and the full year 2026 Bookings growth are 50%+ and 25%+ respectively. The company considers the high base effect from the second half of last year in its guidance, but the management is typically conservative, leading the actual performance to usually exceed expectations. III. Investment and efficiency: Benefiting developers, squeezing short-term profit space In the fourth quarter, the platform's GAAP operating loss was nearly 360 million, with significant increases in various expenses. These include: The main increase was in developer revenue sharing, accounting for 27% of total operating expenses and 34% of total revenue; next, investments were made in infrastructure and trust and security aspects, expanding server capacity to ensure stable operations to support the 1.44 million users smoothly experiencing the platform for over 2 hours every day. Additionally, Roblox introduced SLIM technology in September (Scalable Lightweight Interactive Model), which is now widely used. This technology provides developers with almost limitless resource utilization space, allowing more realistic visual effects to be achieved with fewer resources, thus reducing latency. The expenses related to trust and security are primarily used to address child safety issues that are often criticized and regulated. Roblox introduced facial recognition features to determine player age groups, ensuring safety, restricting young children from using chat features, and avoiding showing them ads. If the real money-making ability of Roblox is adjusted based on the cash flow of funds coming in and out, which is the Covenant Adj. EBITDA that tracks how much cash is left after deducting the basic operational cash expenses needed from the Bookings coming in. It differs from the general Adj. EBITDA by adding back deferred income while deducting deferred costs brought by channel fees. For a third-party platform like Roblox that needs to share revenue with developers and pay channel fees, it is more suitable to reflect its money-making ability. Otherwise, differences may arise due to long deferral periods (for non-one-time consumable virtual goods, typically deferred based on the average user lifecycle of 27 months), mismatched income and expense cycles (income deferred, but developer sharing fees are not), leading to an underestimation of the cash flow advantage under its business model. By the end of 2025, with annual revenue of less than 7 billion, Roblox, which has been in a seemingly huge annual loss, has accumulated nearly 4.5 billion in net cash. The final Covenant Adj. EBITDA for the fourth quarter was 690 million, accounting for 31% of Bookings, marking a historic high. However, due to the aforementioned increased developer sharing fees, infrastructure costs, trust, and security expenses, the company's guidance for the 2026 profit is 20-21.7 billion, with a profit margin decrease of less than 1% compared to 2025. Additionally, the company has significantly reduced the issuance rate of SBC in the past two years, and currently, the impact on stock dilution is less than 2% on an annualized basis according to the latest Q4 data. This article is sourced from the WeChat public account "Dolphin Research," GMTEight Editor: Chen Qiuda