Roblox Corporation (RBLX) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Regina, and I will be your conference operator today. Welcome to Roblox' Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Jaime Morris, Roblox' Head of Investor Relations. Jaime?

Good afternoon, everyone. Thank you for joining us to discuss our Q2 2026 results. With me today is Roblox' Co-Founder and CEO, David Baszucki, and our Chief Financial Officer, Naveen Chopra. Before we begin, I would like to remind you that our commentary today may include forward-looking statements, which are subject to risks, 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, and 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 shareholder letter and supplemental materials, which are available on our Investor Relations website. With that, I'll turn the call over to Dave.

Thank you. Good afternoon, and thank you for joining us. Today, I'll start with a few remarks about the quarter, and then I'll turn it over to Naveen to discuss results and guidance. And then I'll conclude with some important updates about how we plan to achieve our long-term goals. We remain steadfast in our goal to capture 10% of the global gaming market and an even greater share of the U.S. market. Against the backdrop of the incredible growth we delivered last year, in Q2, we delivered healthy year-over-year growth in users, hours and cash flow. And while bookings growth fell within our guidance range, it was below our internal goal, which we will discuss in detail on today's call. Before I hand it over to Naveen, I want to give some updates on the business. First, let's talk about safety. In the first part of this year, we made the decision to age check everyone on our platform and to limit chat only to those users who have age checked. We've made significant progress this quarter. As a result, age-check penetration has increased to 57% globally. And in the first countries where we rolled it out, Australia is approaching 80%, and the U.S. and U.K. are at 70%. With the under 18 segments, we're making enormous progress with the U.S. under 18 at 75%. And in addition, of course, to our filters, industry-leading safety, we don't allow image sharing in chat; and in conjunction with age check, we implemented age-banded communication. We've also introduced new comms products. We'll share a bit more about that. And on the content side in June, we successfully rolled out age-based Roblox Kids and Select accounts. We believe accurate age data amplifies our conviction in the long-term growth potential for the platform. On the discovery side, in the last few months, we shared with our community our strategic decision to focus our discovery algorithms directly on measured long-term retention. We have seen this impact monetization primarily in the U.S. under 13 cohort, and this has been exemplified by a lower frequency of impressions with games that emphasize short-term monetization rather than long-term retention. It's still early, but our data shows a positive lift in quality, stickier engagement games; and the benefits of higher retention, we believe, outweigh the near-term impacts we're seeing as improved retention and engagement compound into future growth. I'm going to now turn it over to Naveen to address some specifics, and then I'll be back to talk about our future plans.

Thanks, Dave. I'm going to share a few details about the quarter and then also discuss updates to our outlook. For the quarter, revenue grew 36% to $1.5 billion and bookings grew 8% to $1.6 billion. As Dave mentioned, this was at the low end of our guidance, and we'll discuss more about that in a moment. We finished the quarter with 123 million DAUs, up 10% year-over-year, and hours grew 5% to 29 billion. In addition to building on the existing scale we have in the United States, we continue to see strong year-over-year growth in many international markets. For example, DAUs in Japan grew 67% and DAUs in India grew 64%. And similarly, hours growth in Japan and India was 61% and 59%, respectively. We also saw users in Russia come back online as we were unblocked there late in the quarter. On the bottom line, operating cash flow was up 60% year-on-year to $318 million, and free cash flow of $294 million was up 66% year-over-year. From a content perspective, our platform is getting more diversified while maintaining a steady velocity of new content. Case in point, 3 years ago, our top 10 games accounted for about 30% of all the hours engaged on Roblox. Today, the top 10 games account for approximately 20% of hours. And in terms of user metrics, new user sign-up activity improved throughout the quarter, benefiting from seasonality and the reinstatement of Roblox in Russia. Retention of existing users remained stable, and engagement hours were in line with our expectations. Monetization, however, as measured in bookings per hour, was below our forecast, particularly with under 13 cohorts and was the primary factor impacting our bookings performance. We attribute the unforeseen monetization shortfall to a greater-than-expected shift of engagement from high monetizing 2025 vintage viral games to a combination of new and evergreen experiences with lower hourly monetization. This underlying mix shift was compounded by changes in our recommendation algorithm, which optimizes for long-term retention and is, therefore, providing more impressions for highly retentive games at the expense of near-term monetization. And in Q2, the bookings impact of this trade-off on younger users was greater than we anticipated. Although these discovery changes add to the variability of our business, our testing suggests that the long-term benefit to retention will more than offset the short-term monetization hit, particularly as we continue to improve the algorithms by doing things like using age-check data to better target recommendations by region and age cohort, which, over time, should help mitigate the monetization headwind we saw in Q2. Another albeit less significant factor in the monetization shortfall was the impact of our decision to disable the sale of cross-experience game passes. Looking ahead to Q3, we expect sequential DAU trends to benefit from seasonality, the unblocking of Roblox in Russia and our discovery changes. But monetization weakness is likely to continue. And as a result, we forecast Q3 bookings to be between $1.58 billion and $1.65 billion, which, given the tough comparisons, translates to a year-over-year decline of 14% to 18%. From a margin perspective, the reduction in bookings will result in fixed cost deleveraging. Additionally, investments in AI-powered initiatives like Build, Roblox Reality and Moments are expected to result in higher infrastructure costs. For Q4 increasing variability and continued updates to our platform lead to a wide range of potential outcomes; and therefore, we are not providing revised full year guidance at this time. While our expectations for the remainder of the year have changed significantly, we have conviction that we're making the right trade-offs to continue our role as an industry disruptor. Investments in AI, content diversification, long-term retention and safety, though creating near-term friction, position us to maximize our share of the global gaming market. With that, I'll pass it back to Dave to talk about some of our future plans.

Thanks, Naveen. Since we started the company, we've been on a mission to support play around the world, and we believe the world needs more play. We can all see it right now given in light of really everything going on in the world. And this fundamental need is part of what gives really all of us conviction in Roblox' ability to deliver long-term growth in excess of 20%. We set our goal of expanding play everywhere with a targeted 10% of global gaming running on Roblox; and in the U.S., we've shared that our goal is to go well beyond 10%. Today, we estimate that 20% of U.S.A. under gaming revenue flows through Roblox. We've done this through the power of our platform and the creativity and diversity of user-generated content; and in this cohort, we validated the power of our ability to unify discovery, economy, tools, engines, safety and cloud infra. While we did experience softness in our younger users monetization this quarter, we believe our monetization system is fundamentally strong and will compound over time with additional levers, including subscription and advertising revenues. We've established, unlike really any other company at our scale, our commitment to setting the global standard for safe digital engagement. And with younger users, in particular, long term, we believe this is a tremendous benefit to have such strength among younger cohorts; and this will contribute, we believe, to fuel long-term growth. The 18 and over market is 80% of the $200 billion global gaming market, and we believe we're uniquely poised to expand play in this 18 and over market in the same way we have for under 18. Today, in the U.S., our 18 and up cohort represents nearly 1/3 of our now age-checked daily active users, and our U.S. 18 to 34 cohort daily active users and hours are growing at approximately 40% year-on-year. And our 13 and up cohorts around the world continued to show strong growth. In addition to our viral growth worldwide in under 18, we have the opportunity to power 18 and up growth with increasing paid acquisition as we continue to improve product market fit. And besides safety, the majority of our product and technical investments supporting growth in 18 and up also benefit younger audiences. We've recently launched 3 initiatives that will support our continued growth in the 18 and up market segment. First, as we shared, we're removing self-imposed limits on the types of games we support on Roblox. Second, we've redefined our app to align with physical play including discovery. And third, we're reconnecting with our core promise that anyone can be a builder. First off, we want all types of gaming on Roblox. We're not that far away from having the technology in place to support the vast majority of games that people play online. On one end of the spectrum, we believe players are looking for multiplayer experiences that will ultimately mirror physical reality. Even since our start, we've had the goal of photorealism and unlimited multiplayer scale; and with our announcement of Roblox Reality, we're well on our way to being the first company to bring photorealistic multiplayer to life and to the masses. We see a future where games really will become indistinguishable from movies for certain types of games. And we can see this quality today in offline AI video tools. We believe we'll soon see this in real time with Roblox Reality. Now gaming is also simultaneously spontaneous and single player and 2D for many people. And up until today, we've been focused on 3D, and we've held back on initiatives to support high-performance 2D tooling and gameplay. Going forward, we're doubling down on our support for everything from 2D puzzle games to strategy. With Roblox Reality and a focus on 2D performance, we're expanding the bookends of what we believe will be possible on Roblox. This week, we've announced a unified vision of our app that includes bringing video discovery and creation front and center to all users. We've announced this week, we're integrating Moments into our homepage for 16 and up users; and we've begun testing for 16 up users in Canada, New Zealand and Singapore. We're expanding the Moments feed to include short-form influencer video in addition to game captures; and we believe, ultimately, Moments will be available for all with appropriate and safe educational content for younger players. Ultimately, we'll expand Moments with tiles that let users watch creators or view live gameplay in real time, so you can see what your friends are playing. Our early tests show substantial gains in Moments user retention, and we're very optimistic about Moments. We'll ultimately be moving to full 3D games in the Moments tab, and this will become integrated with games created through Build. Together with Build, this means you can watch a game in action and then play it with one tap, creating really a unique path all the way from discovery to this new wave of content from Build. On the communications side, continuing our dialogue from last quarter, we're committed to leveraging our world-class industry-leading safety infra to build the highest quality integrated voice, video and text comms on the Roblox platform. We've already shipped Global Chat and Quick Words. And today, a significant portion of our users still do utilize off-platform communication tools. Our roadmap is to provide users the option to video chat with friends or stream with their Roblox avatar. Because all comms that originate within Roblox will accompany users as they move between games, they deliver a safer, richer, more immersive connection than any off-platform alternative. And as a first step in Q3, we'll be deploying In-Experience Friend Chat, which brings real-time text messaging directly into any Roblox game. Creating a game is much more complicated than writing code. Games are built with code, images, graphics, audio tracks, 3D scenes, avatars; and of course, with enormous creativity, we believe we have a unique opportunity to accelerate game creation based on our integrated and vertical stack. Last week, we announced Build, an extension of our vision that everyone in the world can be a game builder, and we're leveraging our internally generative AI models to create a conversational interface. So anyone who can imagine something can describe it and shape it with others and then ultimately bring it to a playable experience to life in minutes. For the creators that are already building with us, we believe this will be about practical leverage, helping them build faster and to reach the right audience more effectively. Build will be fully integrated with Roblox Studio, and the AI powering Build will allow users to start an experience in Build and ultimately finish it in Roblox Studio. We're already live in New Zealand with Build. I just want to highlight. We're seeing a large number of creations flowing through the system already, literally, people fulfilling our vision of you make the game. Now just as coding, it's not just the model, but we believe with Build, it's the integration of a harness, tools and skills; and ultimately, our vision is many models unified in one harness using our cloud back end and infra to come full circle. The other cool thing about Build is it really integrates with what we said about removing the bookends. Many people who are using Build will want to build 2D experiences or 3D, and Build will leverage this with our back end to support everything in between. Given our discovery focus on long-term retention, we're comfortable that we're in a position to appropriately surface the high-quality creations with Build even as the quality of creation increases. We're really navigating a period of normalization, we believe, following a year of massive growth. We have tremendous scale and engagement, which presents us with a unique opportunity to amplify our long-term potential. To capitalize on this momentum, we're doubling down on our vision that the world needs more play. And we're bringing to life really the original vision of our company, which is you make the game, by expanding our global audience, broadening our content offering and deepening engagement for our users and creators. I've never been more excited about our mission and more excited and confident in the road ahead. With that, we'll pass back to the operator for questions.

[Operator Instructions] Our first question will come from the line of Matthew Cost with Morgan Stanley.

I guess you've done a really helpful job on this call laying out what the long-term vision of what you're trying to build with the algorithm changes. And the Kids and Select accounts, you've done a great job of explaining what that's meant to get to over the long term. I guess between here and there, what are you watching? And what should investors be watching to help determine when the engagement headwinds from those changes have peaked? And then sort of connected to that, when we think about the expectation of user growth sequentially in the third quarter, is that just a function of seasonality? Or are there any improvements in the trajectory as you've exited the second quarter?

I have a list. Naveen, do you have a list? Do you want me to go first? Or you want to go first?

You can go first, and I'll catch the last couple of parts to that question.

Yes. Matthew, great question. I think a couple of things to watch. In our U18 segment, we've laid out on this call really where we're going; and that includes, we believe, finally, we'll be fulfilling that original vision of you make the game. Not every user can figure out how to use Studio or make a game. What we see already in New Zealand is more people per day on Build than on Studio. And we do think, ultimately, AI creation of gaming is going to be something that sits side by side playing games. So I think watch for frequency in under 18. We also expect to be fairly generous in the amount of AI or tokens in the build process. But for those users that are using Build all day long, we will, within our Roblox Plus subscription, add the ability to increase what will be called token somewhere else. We'll have our own name for it. watch our subscription for under 18 as well. And then I would say also as we roll out continued comms platform, watch for that. Over 18, we're laser focused on a couple of cohorts in that and the growth rate in those cohorts. And we're laser focused on the type of content that's being created by our creator ecosystem that we believe will be more and more retentive in those cohorts. So I would watch the growth rates in over 18. I shared a bit of what they are today because those point to 80% of the market that we can -- we believe we can do the same thing and as we've done under 18.

And then just a couple of the things you asked about, Matt, in terms of sort of the near-term friction and then DAU trends. I just would clarify, you talked about near-term engagement friction. That's really not what we're seeing. We're actually pretty happy with the engagement trends that we've seen. I talked about some of the health that we've seen in sign-ups, retention, et cetera. So engagement looks good. The weakness that we saw that was inconsistent with what we expected when we put our original plans together for the quarter was really around monetization. And that is going to continue as we continue to evolve some of what we're doing around discovery and recommendations. The DAU trends themselves, seasonality is definitely a big factor there. We're going to get a full quarter benefit from having Russia back online. And so those are probably the 2 big ones that I would highlight with respect to DAU trends.

Our next question will come from the line of Ken Gawrelski with Wells Fargo.

Two if I may, please. Could you maybe first touch upon the updates to the discovery engine? You did a good job of explaining that in the letter but maybe if you could talk about when you expect to see some of these longer-term -- the longer-term retention benefits filtering into both engagement gains and also potentially monetization gains. Just if you could walk us through kind of maybe the time line and your expectations there. And then second, if I may, please. Naveen, could you just talk about, as we're going through this transition and it's -- and the push for over 18 and new content, could you talk to us about any changes you might expect in the cost structure? How either -- from either a DevEx standpoint, from a tech standpoint or platform standpoint, how might the financial profile of the business look in success 12 to 24 months out relative to the prior 12 to 18 months?

I'll start with the discovery algorithms. I touched on, as we continue to refine discovery, what any discovery algorithm is really trying to do is connect users with experiences that both drive long-term enterprise value and simultaneously give signals to creators of what types of experiences are rewarded with discovery. So it's a complicated process. It involves both feedback to creators as well as feedback to users. And watching social, we've implemented and improved our algorithms over the last few months. There's been a resounding support in the feeling that we're moving more and more to evergreen type games, games that keep players around for a long-term, essentially the exact opposite of what might be called, not that we're saying we had it, but more clickbaity or kind of cash grabby type games. We want to be as far in the evergreen segment as we can. We made the decision as we started going down this next gen to go longer into the time frame to measure signals longer. We made the decision to use that feedback loop to update the algorithm even as we're running additional tests. And we've really churned our discovery system from something that's baked in to something that in a way is constantly self-improving and self-estimating our best guess at what user game payers will drive the best long-term retention. We're balancing that more and more with what we think is the optimal mix of long-term retention and long-term monetization. And in our experiments, as Naveen said, we can see shorter-term reductions in monetization but then crossover points and longer-term improvements. We're not going to share exactly what the crossover point is, but this is the reason we implemented and have gone with this. So it's directly measured retention. It's less projecting. It's more direct measure of both retention and monetization. And one other thing. As we introduced Build and we expect the volume of creations to grow much higher on Roblox, we believe this algorithm is very resilient to both finding great new build games that will be playable by all and simultaneously not flooding users with games that might have an AI kind of name to them that aren't as long-term retentive.

All right. And then, Ken, with respect to your question on the cost structure. There's a couple of important things to highlight here. First, our view of the long-term margin potential of the business really has not changed, meaning the kinds of things that are going to drive margin expansion over time are still in place. Obviously, continued bookings growth generates fixed cost leverage. We continue to expect to see mix to lower-cost platforms that will help COGS. And DevEx increases are something that we do intend to continue to pursue, but those ultimately are a function of us realizing fixed cost leverage in other parts of the business. So that's point 1. Point 2 in, call it, the near to medium term, the investments that we're making in a lot of AI-powered product enhancements, I do expect to result in some elevated levels of infrastructure expense. But it's important to realize that unlike our infra expense, historically, this is more of a fixed cost because, historically, infrastructure investments have been a function of hours and users on our platform. These infrastructure costs are largely being driven by model training. And so we're moving aggressively in that direction. But over time, we expect, given the sort of more fixed cost nature of that, as bookings grow, we'll start to see leverage on those infrastructure investments as well. But as you saw in the Q3 guidance, there is going to be some pressure in the short to medium term as a result of the incremental cloud GPU capacity that we need there.

Our next question will come from the line of Eric Sheridan with Goldman Sachs.

I appreciate all the comments about the progress you're making towards being 10% of the gaming market or maybe even more in North America. How do you think about the competitive landscape continue to evolve both within gaming but also among younger users where there's sort of conflicting narratives about being online versus off-line, gaming versus non-gaming in terms of time spent and how you think continually about positioning yourself relative to both the gaming landscape and even a more broader definition for the competition for time and engagement?

I really think the broader definition is a bigger thing than Roblox, and it is our vision that the world needs more play. And play is something that people do with each other. It's something that involves not just playing but creating. It involves being with others, communicating with others being yourself and watching them. And really, as we've redesigned our app and brought the Build as well as Moments to the homepage, it's really part of that vision of mirroring the physical world with what's happening in our digital world of supporting play. We think just like in the real world, where play involved sometimes creating the game, I'm optimistic that we're going to see a volume of creation with Build unlike any volume we've ever seen with Roblox Studio while, at the same time, pro devs and devs making extremely complex properties will utilize all of the capabilities of Build as they move to large teams in Studio to build much more complex type creation. So I do think what is gaming is changing. I think we're going to enter an era just like 10 years ago where most of us didn't know how to edit video. And now all young people, essentially, many of them know how to edit video on their phone. The same thing, I think, is going to happen in gaming where really with AI acceleration, everything from 2D puzzle games to complex 3D multiplayer games are going to be created on mobile, enhanced in Roblox Studio. And that's going to really change the whole landscape, I believe, of what gaming is. So I do think the youth of today are changing, I think, play is universal, and I believe we're moving towards that original vision of really everyone on our platform is a creator and a builder.

Our next question will come from the line of Chris Schoell with UBS.

Great. Naveen, we've seen you announce the buyback since the last earnings call. Just as free cash flow for the business scales in the coming years, can you remind us how you think about capital allocation and how you'll prioritize buybacks with organic investment in M&A? And what impact does any -- if any, does the stock performance have on your willingness to maybe lean in further on the buyback relative to alternative uses of capital?

Yes, sure. I think it's -- we're pretty clear with respect to our capital allocation strategy, meaning the first and foremost for us is making sure that we have the ability to aggressively invest in organic growth. That largely takes the form of R&D, people, tokens, infrastructure, things of that nature. We try to be very diligent and very efficient with all of those investments. But we also recognize we live in a very rapidly changing world right now, and we're going to keep a lot of dry powder to make sure that we can be highly nimble with respect to organic investment. That being said, when we look at our balance sheet and our free cash flow trends, we have a lot of firepower to do both what I just said with respect to organic investment but also to support a buyback and potentially M&A. Our M&A historically has been largely focused on acquiring technical talent, and we have ample ability to continue to do that but also potentially bigger things in the future to the extent there's strategic or industrial logic to it. In terms of stock price performance affecting how we think about the buyback, 2 comments on that. One, the way we have structured our buyback, which is largely to offset dilution from employee equity grants does result in us effectively buying more stock when the stock price goes down, buying less when the stock price goes up. So there is some sort of natural adjustment built into the mechanism. We do have the ability to accelerate that or supplement it, and those are obviously things that we'll continue to evaluate.