Roblox Corporation (RBLX) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Roblox Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jamie Morris, Head of Investor Relations. Jamie, please go ahead.

Good afternoon, everyone. Thank you for joining us to discuss our Q3 2026 earnings results. With me today is Robots Co-Founder and CEO, David Vizubi, 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. Welcome to our Q3 2026 earnings call. There's a lot going on right now in the industry. I'm really excited about it. And with regard to Roblox. My comments may go slightly longer than normal today. So first, I want to reiterate our long-term vision is to capture 10% of the global gaming market on Roblox with an even greater share in the U.S. And we do estimate that in our app approximately 20% of the U.S. under 18 market revenue is already on Roblox. We are I'm going to share today all of the things we have in motion to replicate that success with 18 and over, starting in the U.S.A. and our long-term mission remains to connect 1 billion daily active users with optimism and civility. There's a lot of technology. Things are changing every day. And we've seen just in the last few weeks or month really reverse engineering of all stand-alone code has become very commonplace. We've seen capability, both open source and frontier models continue to accelerate and the time required to go from an idea to a playable game is compressing dramatically. And we're seeing that on Roblox with Roblox bill, and we're seeing it in the top charts on Roblox. We're going to talk more about that today. There is a massive surge in creation velocity happening right now on Roblox. And I'll share a few stats this month daily asset uploads to our Roblox cloud have tripled month-to-month. And we think assets with our images, textures, meshes are good proxy for the amount of creativity that's going on. Our game volume leveraging AI has grown 50% quarter by quarter. We're seeing some of these experiences now become AI-driven hits, since Q2, the time we estimate that's being spent with AI tools, and that includes build studio assistant and external AI with MCP has tripled amongst our top creators. Our daily active users of MCP has increased nearly 5x quarter-by-quarter. And MCP is the way people can connect their own external frontier models to road blocks. Over the last month, more than 80% of the top 100 games when we rank by hours used AI to creation -- and we've seen 2 titles created almost exclusively with AI, hit the top 20 by concurrent players during Q3. That's break on steel and egg and Huss Valley. There's also an inflection point going on in our ad system as more debs are using us to buy traffic. I want to show we're running several initiatives to drive '18 adoption. We shared what we've done with Devex and our engine and marketing we have updates on these in our shareholder letter, but I do want to talk about 2 new initiatives. The first is Roblox everywhere. We announced this at RDC. This is a framework to allow creators and Roblox to publish directly in app stores with 2 phases. In Phase 1, which we estimate will launch in the first half of -- we're at Roblox going to directly curate and publish select top titles as stand-alone apps directly into major app stores. In Phase I, -- our vision is to allow any creator to generate a stand-alone binary directly within the creator portal and submit it on their own to the app store of their choice. . The way to think about this is imagine going to search for Grow Garden in your favorite app store and finding both a stand-alone game called Grow Garden as well as that game being available on the Roblox app at the same time. This leverages the view of build wants, publish everywhere. Creators on Roblox already build once and publish across the devices. They'll now publish within our app and ultimately into app stores. And Roblox everywhere gives full access to a lot, if not all, of the Roblox platform capabilities, safety infrastructure, our social graph economy and communications -- this is something Deb's have been asking for, for quite a while, which is a highly attractive alternative to how they create and support their stand-alone games right now. Second, we're starting to share more and more our vision of what we call a universal player. You've seen a lot of data lately probably about people bringing games into Roblox. What the initiative of our robot player is really 2 pieces. The first, we're developing an AI-supported system, which is going to allow creators to import literally any existing PC console or mobile game directly under the platform. We're making a lot of investments in our platform on scale, 2D and 3D perterrain system and many other aspects to make our infrastructure and game engine, a true universal player. And second, something really important to note is that once games are brought into Roblox, they're available for what I personally call relocation, and it's all of the things that has shown a lot of the success we've seen already on the platform. Any game that comes into our universal player can become multiplayer games that creators build on Roblox run both on high-end PC as well as low end to ag Android at the same time. Gains on Roblox joined instantly with 3D streaming rather than with a download. We do local 3D to eliminate the feeling of latency with your avatar creators using robots right now can do instant updates and many of them update many times a day. And Roblox scans are supported once again by safety, social graph and economic system all running on our back end. So with our current platform, plus everywhere plus a universal player, we're really expanding the framework for '18 and growth. I'm going to discuss our Q3 results in the context of 5 strategic initiatives that support Empower our long-term growth. First is Roblox is a distribution platform powered by social growth and in Q3, highlighting some tough compares last year with we achieved the highest seasonally adjusted overall platform retention since 2021 on the platform. We had $138 million DAUs in Q3, up 12% quarter-on-quarter. We have nearly 34 billion hours of engagement in Q3, up 17% quarter-on-quarter, -- and I want to highlight, over the last 3 years, both our DAUs and ours have nearly doubled relative to Q3 '23. Looking more into some of the cohorts on the platform, our estimate is right now, 30% of U.S., 13 through 17-year-olds are not just on Roblox, but they use it daily and over 80% of them have aged checked -- in the U.S. right now for '18 and up, those DAUs are growing 18% year-on-year and 89% over 2 years. And our 18 and up users monetize or more than our under 18 cohort. Looking internationally, once again, on tough year-on-year compares France DAUs are up 12% year-on-year, Germany 13% and Japan DAUs are up 33%, India DA user up 37%, and we have a lot of runway outside of the U.S., less than 2% of the international population uses Roblox daily. On monetization, Roblox Plus has scaled to millions. And I want to note that Roblox plus subscribers average twice the play time and 7x higher on Roblox spend and more and more functionality is entering Roblox plus all the time. Our sponsor tiles and rewarded video products are demonstrating really expanding product market fit with over 70% of the top 100 games running sponsored ads. And we expect to be testing skippable pre-rolled video ads in select cohorts in countries with expanding first-party inventory this year. We continue to innovate and lead on safety and most recently, for content, we are completely live with our Kids and select content system for younger users. We're -- our vision of a dynamic, configurable safety architecture continues to be well received with regulators, including Australia and Indonesia and beyond. Second, Roblox is a UGC platform with discovery continuously improving. And we're, as I said, poised for a massive increase in content on the platform as AI accelerates content. In Q3, we've more and more incorporated age cohorts and play data into our recommendation algorithm. We believe our discovery systems are continuing to drive meaningful lifts in retention and engagement. And I want to highlight on content diversity, of the weekly top 100 recommended for you games by impressions were created within the last 3 months. We're significantly accelerating the surfacing of great content into our top charts. Most is now live in most of the U.S., and we're directly connecting the games found in moments to active gameplay. Second or third strategic factor I want to highlight is just our proprietary data and models. We have over 20 years of data now on the platform, and we get over 350 million hours of daily data. This is powering now over 400 internal proprietary models that we fine-tuned on top of open weights in some cases. An example that I just want to share which we're working on is in safety. Moving to the capture of 4D telemetry, that means location and time all the way down to the instance and frame level. This is part of our vision to support more and more multimodal moderation which evaluate entire 3D scenes. And I'd highlight, for example, we're now evaluating avatars and the combinations of clothing. They were automatic as part of our moderation system. Our discovery models are trained on billions of daily signals right now and our economy models more and more are optimizing pricing and storefront placement. Fourth, we shared today the continuing goal of creating what we call a universal player infrastructure. And I want to leverage how this highlights the difference right now between traditional gaming in many cases, which is the production of a large binary blob with the whole game and a robot architectural simulation, which includes an app and engine, cloud infrastructure and core services -- and we really want our universal player to be a universal way for any game to be created and distributed. We have a lot of advancements that shipped this quarter on our universal player, including procedural terrain, our slim run time, which is the way of optimizing LOD and how we share systems, our dynamic LOD mesh system, our texture streaming system and server authority with client prediction for fair low latency play. We have 3 really interesting things coming in our universal player. The first is Roblox reality. We've shared that at RDC. You can go see it online, which couples generative video world models to move towards really the dream of multiplayer photo realism. We have early access schedule through Roblox reality in the first half of '27. On our expansion to 2D play, I want to -- and off-line play I do want to highlight, we are moving towards supporting disconnected solo play, which is what a lot of people who use puzzle games and other people have asked for. And finally, within all of the targets in our platform, including mobile PC, desktop consoles and beyond -- we are also now targeting web assembly with the exact same Roblox engine, and we expect this to enable instant one-click browser play initially in Google Chrome, -- so stay tuned for that, Roblox without a download. And then finally, I just want to highlight that this fifth strategic pillar involves our use of all of our data and systems to create what we see as the ultimate AI harness for game creation. Right now, games and experiences on Roblox are built either directly human in studio with the Roblox studio assistant with Roblox build or connecting Robot studio to MCP and external we're making big progress on this harness, both within Roblox buildings, studio assistant. Our harness right now is routing pumps across multiple models both for code for 3D Singen for audio, Avatar models are coming online and more. In our testing so far, in New Zealand, Singapore, Serbia and Thailand, -- we've tested with over 500,000 users. We've seen over 70,000 games published with Roblox build. We already see multiple titles running ads and making money -- and the vast majority of build users have never previously opened Roblox Studio. We're going to be doing a broader U.S. release of build in December and a global rollout in 2027. So summarizing, we're really excited about how AI is unlocking our platform. We're already seeing early benefits. We believe we're really well positioned to capitalize on this moment. And with that, I'll pass it to Naveen.

Thanks, Dave, and good afternoon, everyone. This is an incredibly exciting time at Roblox. As you heard, the rapid adoption of AI across our ecosystem has truly emboldened our vision for growing content and users on our platform. We're looking forward to speaking with you more about that. But before we do, I want to briefly share some color on our Q3 results and our guidance for the current quarter. With respect to Q3, as you've now seen, bookings came in above the high end of our guidance. The better-than-expected performance was driven largely by retention engagement. In fact, seasonally adjusted retention reached its highest level since 2021, and that was aided in part by continued optimization of our recommendation algorithm, which helped new titles like steel and egg and Host Valley built sizable audiences quickly. And that dynamic is also playing out more broadly. In fact, in Q3, 40% of the top 1,000 games by hours launched in the last 90 days. As expected, monetization headwinds did continue in the quarter, particularly with younger cohorts in the U.S. But we remain confident that the RFI driven list we are observing to engagement and retention translates to higher user LTV over time. On the bottom line, margins in Q3 benefited from higher-than-expected bookings. And free cash flow came in well ahead of expectations. That was a combination of the flow-through from bookings outperformance and also the shift of approximately $140 million of CapEx from Q3 into Q4, which you'll also see in our free cash flow guidance. Speaking of our guidance, we expect Q4 bookings to decline by 10% to 15% year-over-year. This assumes normal seasonal DAU declines between Q3 and Q4. We -- and though bookings are expected to be down year-over-year given the comps from 2025. I'd note that the midpoint of our guidance implies full year annualized growth of 26% over the last 2 years. Now our bookings guidance does build in a modest headwind from the release of GTA in the quarter. So candidly, we have limited data from which to size any potential impact. And on our margin guidance, we expect increased infrastructure expense relative to Q3 for AI initiatives, including things like build, Roblox reality and universal players. We also plan to continue to increase marketing spend, targeting over 18 users. We've been encouraged by what we've seen as we've been dialing up this type of spend. retention, engagement and monetization of paid users is outperforming organic sign-ups, which means it's a very efficient way for us to jump start the flywheel for 18 and over users. We plan to continue scaling while also maintaining a high ROEs bar. Lastly, as I referenced earlier, our free cash flow projection for Q4 is heavily impacted by the shift of CapEx from Q3 to Q4. We're currently planning for $380 million of CapEx in the fourth quarter. That implies $460 million for the full year which sits at the low end of the expectations that we shared at the beginning of the year. With that, I'm going to pass it back to the operator so we can jump into your questions. .

[Operator Instructions] Your first question comes from the line of Bryan Smilek with JPMorgan.

Dave, as you look to power 10% of the gaming industry, made the decision to more effectively balance LTV and monetization with an algorithm. Can you just elaborate a bit on the progress of yielding viral hits faster while also deepening retention? And then conversely, as we look towards return to bookings growth over time, can you just talk about the building blocks of improvements across the Algo, AI content and distribution, especially across the over 18 cohort?

Yes. So Greg, once again, the Algo is getting better all the time. I think if you look at our home page, you'll see it and you'll feel it, and you'll feel that we're driving direct measurements and optimization of long-term retention. What we've seen recently is both and that the algo is pushing more dynamic content to the surface well simultaneously bringing long-term retention high. And you've also seen recently more and more new hits popping up on the platform, and our algorithm has been supporting that. As I look to what the homepage looks like for an '18 and up user, is looking more and more like a platform for those age cohorts. So I think we're not just on our way with Algo improvements, which are continuous. But we're also on our way with algo improvements that I think will take advantage of more creativity with AI rather than succumb to it. And even as we see more content being pushed to our platform, we're designing with that in mind to find the great new content within arguably more content.

Your next question comes from the line of Ken Goreski with Wells Fargo.

Two, if I may, please. First, could you talk a little bit maybe more near term around the assumptions on the 4Q bookings guidance and kind of how much conservatism you bake in as the comps ease, especially towards the end of the quarter. Also, you mentioned there, you expect a modest headwind from GTA launch early in 4Q. Could you talk about any historical references you may -- you could you could discuss there about -- that would share any kind of similar competitive entertainment launches and the potential impact? And then 1 second one, please. Could you talk about your preparedness to enable all of the tools and experiences Dave detailed to open the call. I know you talked about some 4Q expected deleverage, but can you touch upon '27 and beyond infrastructure spending to prepare for all these outstanding experiences.

Yes. Ken, it's Naveen. I'll start and then Dave may add a little bit on some of these -- so first, in terms of our thoughts on the guidance for Q4, I'd say a few things. First of all, -- we continue to feel really good about the long-term trends that we're seeing across user growth, retention, engagement, -- you obviously heard some of the stats and highlights there. And that's been trending very positively as we've gone into the beginning of Q4. So I would note a few things. Number one, some of the strength we've seen recently has been a function of some big hit games that have grown quickly on the platform as well as a high volume of updates associated with Halloween and events that we've got planned around Halloween. And I mentioned that because for guidance purposes, we don't assume that those things will necessarily repeat in the coming weeks. Similarly, for guidance purposes, we don't assume short-term improvement in monetization. And then as I also called out and you asked about, we have built into our guidance some modest headwinds related to GTA. That being said, and this is your second question, -- there really is not a lot of data or analogous releases by which to try to estimate the impact that GTA may have. This is a -- it's a pretty different demo than what we have on the platform today. Obviously, that will change over time. It is a console-only release -- and so we don't really know what to expect, but we've tried to be prudent and as I said, build in a little bit of a headwind there. And then I think on the next part of your question around sort of readiness to support some of the new initiatives. I'll let Dave start, and then I'll touch on some of the '27 financial impact there.

Yes, just -- and adding on for game-like GTA, these do create cultural moments. And -- it is, in many cases, on Roblox, no prediction here, but when we have cultural moments, people do lean into cultural moments on Roblox as well and similar types of genres. On the infra right now, we're really focused on keeping that same trajectory. We have a really economical in for cost going forward. We are going to be adding more compute, more GPU as we look forward to, for example, Bill, which has some influence. But we're being very thoughtful of it right now. And part of our secret sauce to date has been just running infra very efficiently. We're not going to lose track of that. But that being said, we are going to add more, I would say, inference capability going forward. And I'll let Naveen get into details on that.

Yes, I actually don't have a lot to add. I mean I think they've kind of hit the key points from a modeling perspective, I think you should assume that as we called out, in Q4. We do expect infra expense will grow. I expect there'll be some additional year-over-year growth as we go into next year, obviously, too early to get into any specifics about that. But I would remind you of something we talked about last quarter as well that a lot of the investments we're making in for now take more of the form of fixed expense as opposed to variable because a lot of it is related to model training. We like that for 2 reasons. Number one, over time, we can move more and more of it on-prem -- and number two, obviously, as the top line continues to scale, it will be a source of operating leverage for us, particularly, as Dave pointed out, as we start to drive down the cost of both the models and the efficiency of power and compute that we need to execute those models.

Your next question comes from the line of Matt Cost with Morgan Stanley.

There's a lot of exciting stuff in the shareholder letter in the call on the product side, but I want to focus really just on AI content creation. What are the biggest product milestones that investors should be watching most closely in terms of bringing some of those tools like build to market and seeing the velocity of games being created and improved. And then when should we expect that higher velocity to start to translate into user and bookings growth?

Yes. I think you're already seeing early signs of it. A year ago, I don't think we would have imagined that we would have 2 of the top 20 experiences on roadblocks, primarily AI generated. So we're seeing that right now. The metric that I shared earlier, which is really a tripling of the assets coming into Roblox. A lot of those are AI-generated textures and meshes assets. That is already a good metric of the velocity of imagining our universal player as headless rails where people can run MCP or a studio assistant on it. So that tripling has already happened with build, if you want to watch our velocity over time, we're going to go live in U.S. We've built -- we've only been testing with a small group, New Zealand, Singapore, Serbia and Thailand. There's going to be a very large increase in the number of games that are created and published with Bill. And we are seeing right now, games created with build start to monetize, and we're seeing people buying ads with that. So we're in the middle of it. I would say watch the -- we'll probably give more that build as we go along. But I think with launching this year, you're going to see a huge expansion of that. The other thing that we're doing is the harness that power is built is ultimately the same harness that powers Roblox Studio assistant. And this is a fairly complex harness that leverages a lot of our data and tech, multimodel writing or routing for code multi-model routing for Singen. You're going to see Avatar Gen come online. So watch both build as well as studio build, they'll be working hand in hand.

Your next question comes from the line of James Heaney with Jefferies.

Yes. Great. Can you just talk about how you plan to execute on the universal player initiative? Are you going to need licenses with the IP owners, these games you're trying to port over on to roadblocks. I just want to make sure we understand the playbook and the opportunity for that initiative.

Yes. So first, once again, we really expect respect IP in respect to EMC takedown. We want licensed IP on our platform. What's interesting with the universal player is a lot of creators we're talking to who have a game running that's been built in some other way, can now imagine rather than a full rewrite of the game, literally having that game functioning in a matter of days rather than weeks or months. And as far as the velocity of that universal player, you're already seeing it once again, but it's going to get better and better as fidelity goes up, scale goes up. And we really take on this vision of the universal player can import and run any game. This makes it easier once again for a creator with an existing property and bring it here and add Robloxification. There's a lot of PC games that don't run mobile right now. The way we dynamically scale in the cloud, those PC games will run at lower resolution on a low-end 2-gig Android device. There's a lot of games that have a large download that typically you wait to download that will launch much more quickly. There are a bunch of large games where it's hard for the creator to update at a certain frequency with Roblox everywhere in our universal player like on the Roblox app, those updates will be possible many times a day.