Dive Brief:

• Roblox reported a strong start to the year with Q1 revenue increasing 22% year-over-year to $655.3 million, according to the company’s latest earnings report. Bookings for the company totaled $773.8 million, a 23% YoY gain.
• Engagement similarly made gains, with daily active users averaging 66.1 million, an all-time-high, up 22% year-over-year, while hours engaged reached 14.5 billion, also a new record, up 23% from a year earlier.
• During an earnings call, CEO Dave Baszucki discussed the platform’s advertising infrastructure, noting that a system is being tested. The executive projects Roblox will make a “small amount” of advertising revenue in the next quarter.

Dive Insight:

Despite some scrutiny, Roblox seems committed to developing its advertising infrastructure, according to an earnings call with investors. While Roblox’s advertising system is still very much in its infancy, it has the potential to become a major revenue generator for the platform popular with younger consumers. 

During the call, Baszucki described the planned two-pronged advertising infrastructure for the platform. First, advertisers will have access to traditional methods of advertising on the platform, such as appearing on an in-game billboard. Roblox additionally plans to leverage Portal Ads, an interactive, native, non-invasive virtual space where consumers can interact with brands on a more personal level. 

“This is a new ad format. It's a format where people go and experience something in 3D spatial reality, where they go to Gucci Garden, where they go to Vans World. This is what I'm really excited about, given how disruptive it is,” said Baszucki during the call.

However, such advertisements have come under heavy scrutiny from parents and privacy groups. Privacy watchdog organization Truth in Advertising filed a FTC complaint with the company back in 2022 and in 2023 targeted Walmart directly about an “advergame” it hosted on Roblox. Walmart shut down its Universe of Play space in March.

Complaints of deceptive advertising and concerns surrounding children’s ability to recognize a Portal Ad as an advertisement were not addressed during the call. Portal Ads were enthusiastically promoted by executives, with Baszucki stating the technology has the ability to revolutionize the category and create a new type of advertising market.

The platform put up a strong performance both financially and in terms of its user base, somewhat contradicting the idea the metaverse is falling out of favor, with its 13-and-up segment growing 31% YoY. Particularly of note, Roblox’s bookings, a key metric to the company’s success, have continued to see a major turnaround. Over the last five quarters, bookings have improved from negative 3% growth, to negative 4%, to plus 10%, to plus 17%, to Q1 2023’s 23% YoY growth, a success Baszucki credited to “eight quarters of innovation and awesome engineering.”