Roblox Blows Past High Earnings Expectations. The Stock Is Rising Sharply.

Roblox’s “Grow a Garden” set the record for the most concurrent players in any game of 22 million. (Roblox / X)

Fast-growing gaming platform Roblox came into its second-quarter earnings report on Thursday morning with a sky-high stock and equally large expectations for results.

Roblox leapt right past those expectations.

The stock surged 10.3% to $137.79 on Thursday, a record high. The last time Roblox set a record price was in November 2021, in the midst of the pandemic gaming surge. Coming into earnings, its share price was up 205% in the past year, compared with 24% for the Nasdaq 100 index.

Second-quarter bookings, the company’s most closely watched metric, were up by 51% on the year, well ahead of the Wall Street analyst consensus estimate of 34% growth. User metrics were similarly stellar, with daily users up 41% annually, and hours engaged up 58%.

Roblox also gave guidance for the third quarter and the year that were above what analysts had projected.

It was an “overwhelming show of force up and down the report,” according to Raymond James analyst Andrew Marok. “Roblox put up incredibly strong figures for every metric worth paying attention to, clearing one of the highest bars we recall seeing in our gaming coverage history.”

Of the 18 analysts that have released new research notes since Roblox announced its earnings, all of them raised their price targets, according to Factset. On average the group has a $142.50 price target and an Overweight rating.

Long term, Roblox aims to grow sales by 20% or more a year. It has generally delivered on that, only missing the target in 2022, after the pandemic-fueled sales growth of 2020 and 2021. But this quarter’s results blew past that long-term goal because of a surprise hit, Grow a Garden.

Roblox is a gaming platform, social media app, and an outlet for game-design creativity. All the millions of Roblox games come from users, like a YouTube for games. Most Roblox games see little play, but that still leaves many popular ones that rise to the top.

Grow a Garden, created by a well-known Roblox developer who goes by BMWLux, is a farming simulation game that has had 21 billion visits since its inception in late March, and in June it set the record for the most concurrent players in any game, 22 million. That Roblox’s custom cloud could handle so many players at once is indicative of its heavy 2022 and 2023 capital investments to support rapid growth.

Whenever players tire of Grow a Garden, there are millions of other games, and that is the formula that keeps Roblox growing.

Roblox has unusual financials that make analysis a bit difficult. Around 90% of its revenue is recognized over 27 months, so its second-quarter revenue by generally accepted accounting principles is more indicative of the previous two years of gross sales.

Wall Street analysts have moved to preferring bookings, the total value of Roblox sales in a quarter, as its top-line metric.

Roblox has large losses by GAAP measurements, where it saw a $1.1 billion operating loss on revenue of $4 billion in the last 12 months. But adjusting for unusual revenue recognition, that becomes a $194 million loss on $5.1 billion in bookings, and trending toward profitability.

Regardless of how one looks at Roblox’s income statement, it realized $942 million in free cash flow in the last 12 months. As of the end of June, it had $4.7 billion in cash and investments, and an ever-growing pile of $5.1 billion in deferred revenue waiting to be recognized.

Write to Adam Levine at adam.levine@barrons.com