Q1 2023 Roblox Corp Earnings Call
Good morning, My name is Brent and I will be your conference operator today at this.
Time, I would like to welcome everyone to the roadblocks first quarter 2023 earnings conference call.
All lines have been placed on mute to prevent any background noise.
The speakers remarks, there will be a question and answer session. If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one. Thank you Stephney Connie you May now begin your conference.
Thank you Brent good morning, everyone and thank you for joining our Q&A session to discuss roadblocks as Q1 2023 results with me today is roblox co founder and CEO , David <unk> and CFO , Michael Guthrie as a reminder, our short shareholder letter press release SEC filings supplemental slide.
And a replay of today's call can be found on our Investor Relations website at IR got robots dotcom on this call. We will make some brief opening remarks and reserve the rest of the time for your questions or commentary today may include forward looking statements, including but not limited to our expectations of our business future financial results.
And financial strategy forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in our forward looking statements and such risks are described in our risk factors included in our SEC filings, including our most recent reports on Form 10-K, and 10-Q, you should not rely on them.
Forward looking statements as predictions of future events, we disclaim any obligation.
Any forward looking 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 for our reported results can be found in our press release as well as in our supplemental slides for our webcast participants. Please note the question icon at the bottom.
Of your screen, where you can submit your questions with that I'll turn it over today. Thank.
Thank you and good morning, everyone, we are going to.
Chart with the prelude and I wanted to talk a bit about.
Bookings acceleration and the generation of cash, which is really exciting for our business.
We're going to talk about our future bookings growth rate relative to cost of sales infrastructure and compensation expense, which.
It is also a wonderful story and then finally, we'll touch based on innovation and what we've done in the fruit since the start of this year.
Our revenue in Q1 grew 22%.
$655 million.
Bookings grew 23% to 773 million and I wanted to just highlight bookings is how we run the business we run the business based on cash our bookings growth rate year on year over the last five quarters has gone from negative three to negative.
<unk> to plus 10 to plus 17 two.
Plus 23%. We believe this is being driven by eight quarters of the innovation and.
Awesome engineering that have expanded our platform.
And our platform is growing in all directions, and we'll touch on that.
<unk> was $268 million well cash from operations was positive $173 million, we generated over $100 million of free cash and operational cash in the quarter and this just highlights the difference between cash and.
Our GAAP loss, which is driven by deferred revenue and other factors.
Finally, our cash has been steady relatively over the last six quarters, and we have approximately $3 billion of cash with no external financing.
On the user side, our da use are up 22%.
With an all time high of 66 million VA use our hours are up 23% year on year. Once again, an all time high of $14 5 billion hours of engagement in Q1.
All regions are up and I want to highlight that our 13 and up segment is growing 31% year on year, which bodes very well for our future growth is that an amazingly large available market for us.
On the developer community money flowing to our developer community increased 24% year on year to a record $182 million in Q1.
We have some exciting things happening in our business our bookings growth year on year is already exceeding our cost of sales growth year on year.
And we believe in Q3 of this year our year on year bookings growth will exceed our infrastructure year on year growth is a testament to the efficiency on our infrastructure spend and the way we have built out our redundant data center in Ash I want to highlight that we spent almost 400 million.
<unk> of cash on infrastructure over the last year, and we're still showing positive cash flow in Q1.
Finally, we believe in Q1 of 2024, our year on year bookings growth well past our year on year compensation expense growth through just the operational excellence. We are we have not suffered layoffs, we continue to highlight but we're being very thoughtful and hiring them.
And growing our head count efficiently.
On the cash side once again I highlighted we're in an awesome cash position and.
On the innovation side, we continue to innovate.
Our vision is to bring together a 1 billion people every day with optimism and civility and we're very bullish about this vision. We continue to feel very positively about this opportunity in the last eight quarters, we've driven a lot of innovation I want to highlight on the.
Innovation, we've really executed on since January one of this year and that innovation falls in categories of cost control revenue acceleration AI generative creation international aging up in our vision of social communication, We've got a 15 year history of innovation and we.
Believe innovation is once again contributing to our bookings acceleration.
On the cost efficiency, we've been using AI and machine learning for quite some time to drive.
The efficiency of our safety organization, which is really the primary focus of our business and we've gotten to the point, where we're highly automating reviews of three D objects audio and images on the revenue side.
To highlight that our advertising system is now in tests, we have over 200 developers that are participating.
We are we're not going to share the number we will make a small amount of advertising revenue in Q2 of this year.
And I'll quote with the NFL shared with our advertising system is that portals have helped the NFL reach and convert a high percentage of new users into their experience. We're really excited about this it is a new AD format that complements image and video that is very immersive and Nate.
Live to roadblocks.
We launched two AI generative accelerators to help our creators create better and create more quickly first as a material generator that allows developers to create any type of three D material purely by using a few words greater on robot says I would like.
A brick wall, that's a little bit covered with Moss that's enough to generate its reading material. We're proud that we did this.
Early this year and we're also launching cogeneration roadblocks has an amazing repository of low code and we're using this to train a code generator that won't just help people autocomplete, but really helps people create on script on roadblocks on.
The international side, we continue to drive the vision that roadblocks as a platform that will work around the world and also drive the vision that anyone's creation can go lives in many many countries.
I want to highlight Japan, which is now growing at over 100% year on year on daily Actives, it's been driven by some advances we've made on semantic search and the quality of our translation.
We.
We continue behind the scenes to drive the quality the performance and efficiency of our core <unk> engine.
And we've made enormous strides on our vision of social communication as well since the start of the year voice on roadblocks is now being used by almost 10% of over 13 daily users in the USA, 9% to be exact and we've rolled out with zinc as well on our journey.
Need to fully animating avatars on the platform either using lip-sync or ultimately camera.
Our funnel of other thing just to highlight.
By day seven based on all the work we've done on contacts and friend finding people are finding 10% more real life friends on the platform and the first seven days than they were a year ago.
Just want to once again recap and then we'll start answering questions.
Long term mission is 1 billion users everyday connected with optimism and stability, we're focusing on driving bookings growth with innovation.
Behind that bookings growth.
We have an enormous focus on operational excellence and efficiency and once again, we believe by Q1 of next year bookings on a year on year basis will be growing more quickly and cost of sales infrastructure expense or head count compensation expense.
And then finally, the cash that we spin off as much as possible we want to.
Really share with a creator community to drive innovation.
With that we'll open up for questions. Thank you.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question is from the line of Andrew Crum with Stifel. Your line is open.
Okay. Thanks, good morning, guys.
There are a lot of discussion around slowing investment spending I'm, assuming or I did not hear anything around developer exchange fees.
So Mike I guess does the 24% as a percentage of <unk> bookings.
Is that a good quarterly run rate for the business over the next several quarters or does that continue to move up and Dave as you think about this line curious if there's a competitive response to ethics.
<unk> added or for Fortnite in terms of the economics of the company pays out to its developer community banks.
Yeah, I'll go and then I'll, let Mike talk about long term exchange.
Developers are flocking to roadblocks right now.
In March 2023, the number of developers who earn something on our platform grew 63% year on year to over $4 million.
And the money to our community increased 24% year on year in Q1 to a $182 million. There is an enormous economic opportunity on roadblocks that we just we see that continuing to grow with a lot of developers moving to our platform I'll, let Mike comment on the.
Developer exchange rate yeah.
Yeah.
On the right.
We're pleased that we have continued to increase the rate of growth in developer exchange over the last few years, we continue to look for efficiencies in our business not only to drive our bottom line, but also to drive increasing economics to the developer community and we will continue to do that over time, we've been sort of very steady in our approach of increase.
That number.
And as we garner efficiencies in the rest of the company. It really gives us the flexibility to balance increased investment in the community with.
A little bit of increase in the bottom line for the company. So we will continue to take that approach.
Understood. Okay. Thanks, guys.
Thanks.
Your next question is from the line of Omar <unk> with Bank of America. Your line is open.
Hi, Thanks for taking my question and good morning.
I wanted to maybe double click a little bit on that stat fortnite.
<unk> at night Creative question that was just asked as you can see some in the investment community have seized on it.
As a source of competition.
Even though the platforms are very different so I wanted to ask you given the early stages of the development of the med averse.
How would the emergence of a second ecosystem over time actually be beneficial or symbiotic to roadblocks and its developers.
And I have a follow up after that.
Hey, Omar Great Great question.
I want to share a bit about how we think of the innovation at roadblocks in how we have for the last really 16 years as you correctly note. It's still very early and the creation of the meta versus we see a place where robots and have a 1 billion daily actives.
We think about innovation as inventing and creating things that have never been done before to help drive this vision of the meta versus and one of those is UGC creation, which we launched over 16 years ago that we do believe as part of this vision.
There are a lot more innovations that are coming from us and we shared the vision around social communication, we shared our vision around the AI driven acceleration. We shared are driven around an AD platform. We're just very bullish that it's going to take a lot more new invention and the creation of <unk>.
More long court pull technologies to get to that 1 billion daily actives.
And Thats, what we focus our engineering and product teams done.
Okay, Alright, so maybe a follow up to that.
I noticed that a studio that kind of start on roadblocks recently raised $25 million.
Series, a venture capital round, so as the most successful studios in your ecosystem become a larger and their Ips and services are capable of standing on their own how does the roadblocks thinking about incentivizing them to keep monetizing on platform rather than three times, rather than through some social channel or another crater.
Platform.
Yes, I want to highlight.
That's not really a future looking thing that's something that exists right now and that those incentives today, our already massive and continue to grow our top creators create experienced.
<unk> experienced that generate tens of millions of dollars and you can see as they're starting to raise money or the size of those creators is getting larger with a shared earlier, which is continued bookings growth continued economic activity operational excellence. So roblox runs as.
Lean as possible both on cost of sales on our head count expense and on our infra what that means is a efficient utility that pushes us much money back to those creators as possible. So we think those incentives are already there and we think it's all about operational excellence and moving as much economic.
Activity on the world.
Enormously large platform to that developer community.
Great. Thank you very much.
Okay.
Your next question comes from the line of Matthew Thornton with truly Securities. Your line is open.
Hey, good morning, Dave and good morning, Mike maybe two quick ones if I could.
I guess first any color on trends that youre seeing in April into May and maybe just how we should think about what a normal second quarter. It looks like for you guys seasonally because obviously we've had a couple of really weird weird year. So any color there would be helpful. And then just secondly, I think Mike last quarter, you guys talked about maybe two quarters ago.
High single digit type EBITDA margin for the year or is that still the way we should be thinking about 2023 or <unk> or has that evolved at all thanks again guys.
Got you.
Thanks for checking in.
We did our last monthly metrics presentation in March and I think where we're all excited and glad that we did it and are glad that we are done doing it. There is two years of pretty good healthy data out there that.
Seasonality and Covid and reopening from Covid. So I think there's plenty of data out there the benefits of Q2 of course are.
April was really strong with the Easter holidays and June is strong because school is out and it's the start of the summer.
Summer is always a big time for the platform as it is for lots of companies.
In terms of margins.
That's all about it today on the call.
Again, it's really about efficiency, it's about coming to a point in the company's history, where we have returned to really substantial bookings growth as a result of making incredible investments in people and infrastructure and now being able to.
Allow that growth to creep up to a level, where it exceeds our investments in people and infrastructure. So we feel really really well set up.
Combine growth with operating leverage over the next few quarters and years and Thats really whats important to us. So I just would say expect to see our business over the next few years that is really high growth and high high operating leverage we're excited about that and we will continue to make the right investments in the company for long term value.
We feel really strongly that the investments in people and info that we've made over the last couple of years.
Allowed the business to grow and hold onto a substantial growth that happened at the beginning of Covid and now we find ourselves with as Dave said peak users peak hours of engagement I think our business growing faster than almost anything in digital entertainment gaming social so we're really satisfied with where we are.
And feel like we're at a place where we can make a really nice combination of investments in growth and leverage.
Great. Thanks, Mike I'll hop back in the queue.
Your next question is from the line of Matthew cost with Morgan Stanley . Your line is open.
Good morning, everyone. Thanks for taking the questions I have two here maybe first one for Dave just looking at the over 13 age group in the first quarter I think it grew a little over 4 million da use up from the fourth quarter, which looks like one of the biggest increases that you've seen I guess is there anything that you would call out that there was.
Older users are engaging in what is driving that uptick in over 13 da use.
And then I guess just for Mike on the on the margin side I think in the press release, there was a comment about seeing.
Some improvement on gross.
<unk> as a result of prepaid cards as you've talked about in the past, but theres a comment in there about credit card is there an element of direct to consumer payments that youre working on.
In the mobile apps that might be driving some of that leverage.
Yes, Hey, first off on.
Our vision and we've been sharing at this since before we went public is.
This whole vision of our product platform and category is for all ages around the world and we've been working on this for many many years with division that.
Younger people older people play on roadblocks will learn on roadblocks, we will start to connect when they're at work will go to concerts on roadblocks.
And a wide variety of these types of things, we're really pleased with the order growth as we continue to improve the quality of our engines stimulation as we improve the quality of search and discovery.
We are seeing more and more developers and creators start creating experiences that are exciting for people all over the world.
<unk> through 'twenty four is growing very very rapidly we're seeing experiences like frontline's, which are really been funded by our creator funding are driving much more high quality type experiences that older players are flocking to we think there is still enormous headroom in the Ole.
Other player base as people start to use roadblocks as a way to socially connect as well. So we're really bullish on the long term size in that cohort on the credit card thing I just want to highlight where we're saying there we're seeing that our bookings year on year growth rate is already past our cost of sales.
Year on year growth rate is because there's so many ways for our community to spend money on roadblocks. They use prepaid cards. They can use credit cards. In addition of course to our partners at Google and Apple and as that expands.
We're seeing the the leverage we get is bookings grows faster than that cost of sales.
Okay. Thank you.
Your next question is from the line of Clark <unk> with <unk>. Your line is open.
Hi, Thanks for taking the question I wanted to come back to bookings acceleration I'm curious if you guys could provide a general sense for how maybe that's going to be balanced between user growth relative to monetization initiatives now that we're seeing more product coming out of the development pipeline and maybe bigger picture as we're thinking about this sort of divergence in bookings and opex trends.
Is it reasonable for us to think about sort of 20% as a reasonable rate maybe over the balance of this year into next year.
Hey, Mark.
On bookings.
Yes.
Multiple things that drive our bookings, we start with our user base and we look at the frequency of the user base, how often they come to roadblocks.
That gives us our daily active users when we look at how much time that as users are spending with us.
Hours per year, you that number has continued to grow.
And isn't really healthy across most parts of the world and most age groups.
And then we look at.
Much capital is being spent per hour of engagement on the platform and again over the last few quarters, we've seen really healthy growth in our monetization. So it really is a combination of more users.
Spending more time with us and spending more and more money on the platform as well if you look at the monthly unique payers.
And our sub.
Supplemental materials, you'll see that primarily the growth bookings growth has been driven by more payers, but theres slightly increase in the monetization prepare and if you look in the.
Monetization by region, which we break we broke out for the first time, so bookings per <unk> by region in the supplemental materials, what you see as good year over year growth in all regions, except in Europe , where we simply have had high growth and in eastern Europe Western Europe on the other hand, if you look at the.
The peaks of monetization in the U S and Canada.
But are you starting to see is maturation of payer cohorts that we know over time.
They run for a very very long time, and they tend to monetize more as time goes on and so in the U S. We have more of those cohort you actually can see.
Higher peaks in terms of the monetization even when we were at the peak of Covid. Other parts of the World. We think will actually get there as well over time as their payer cohorts become larger and more mature so right now like in the U S with an incredible mix of older payer cohorts of new buyer cohorts coming from older age demos is powering a lot of really good.
Brett so.
Generally right now.
Most of the.
The topline growth is just driven by the fact that our users continue to grow and I think that our charts on our engagement chart. It really been up into the right over the last four plus years, but we are certainly seeing healthy signs of people spending, especially that he is the best thing with us for a while spending incrementally.
And maybe if I could follow up really quickly just on the sort of topic of gift cards and prepaid cards is that something that we should expect to be driven more by international markets or is there a higher propensity there and if adoption done sort of tick up in the international markets does that have positive implications for margin in those territories too. Thanks a lot.
Thanks, Mike It has positive implications for margins anywhere in the world.
And we we continue to look for places where consumers don't have access to prepaid cards and make to make sure that they have access to it because it's just a low friction very much in demand source of currency.
In our in our user base, we are definitely growing internationally. There is a there is a.
Probably a higher propensity for store value and foreign markets. We're excited to continue to find places where there is growth, but every growth around literally globally and our team is.
<unk> focused on growing the prepaid card business that actually is doing an excellent job I'll give an example in complementing the over 100% year on year growth, we're seeing in Japan.
Robots gift cards are now available in 65000 different convenience stores in Japan.
Your next question is from the line of Bernie Mcternan with Needham Your line is open.
Great. Thank you very much I was just wondering.
You mentioned frontline. So was wondering what types of content you are seeing that our most popular for older age demos and is it always the highest fidelity games and reason being how do you think January of AI tools.
Could impact the amount of content that is really geared towards the aged up to age demos.
Yes.
I want to highlight that roadblocks is a place where new types of experiences that people have never seen before have been created in and become huge favorites with billions and billions and billions of players.
And frontline's is a little more traditional high resolution types.
Experience, but many of the experiences on roadblocks and you named the favorites adopt me jailbreak Brookhaven had huge older audiences as well and really become international favorites as well as all age favorites.
Really really proud of that.
We are uniquely poised.
To accelerate our whole platform with AI generative technology.
And it's you're seeing early signs of it now on material generation and code generation, but ultimately it means <unk> experienced generation. It means avatar generation. It means the quality of real time language translation. It means the quality of search and <unk>.
Discovery and because of the size of our user base and our 60 to 70 million daily active users, we have an enormous opportunity to really reinforce trainer and accelerate the quality of our AI. So keep an eye on that we're really proud with the URL.
Signs from our code generator in our material generator, but we're really building a platform to use this throughout roadblocks.
Understood and just a follow up for Mike on the commentary on infrastructure and compensation leverage is this a change in priority prioritization for margins is it a higher bookings outlook just trying to think about what's driving this.
Better outlook now for some of this cost leverage.
Hey, Brittany well.
One place to start would be the bookings growth rates over the last five quarters. So it's probably not.
Not escaped your attention that we are back over 20%.
The investments that we've been making over the last couple of years has all been geared towards.
Grew up keeping on growing.
As of audience.
And getting through Covid, and the reopening and still growing on top of that so.
We felt like those investments were very high ROI will be proven out with.
A return to bookings growth. So we are now at a much higher level of bookings growth.
You have higher topline growth, you've just got more room for operating leverage and so we feel like it's a good time to allow that growth to outstrip the growth in.
New hiring and infrastructure investments those are decisions that we've made relatively recently so they don't happen overnight and it will start to.
See benefits from that as we've talked about in the back half of this year and early next year and then as.
As we go into 'twenty, four and beyond so very much a result of getting things done getting teams to a certain scale getting infrastructure to a certain scale and ensuring that our top line was a back to high growth.
Understood. Thanks, Mike Thanks, Dave.
Your next question is from the line of Andrew <unk> with Jefferies. Your line is open.
Hey, Thanks for taking my questions.
Really appreciate the deep DAA by region. It's that's how we model. So it can make life a lot easier for us.
On on that.
On that data, though could you just give a little bit of color like it's interesting that Europe's not a much higher rate than say APAC. So just if you could give.
Give us a little color around where you won.
One where do you think those numbers could go can they approach U S Canada and.
Then if you had kind of break Europe down between say western and eastern.
What those trends look like.
Yeah, Hey, Andrew.
So in terms of the monetization levels I think it's still.
I'm going to put something up in front of me.
You basically look at the U S data first and what you see is.
See how in the fourth quarter of 'twenty two.
Monetization was actually above any of the prior fourth quarters, even at the beginning or in the middle of Covid again that has to deal with the length of the time Payor coincident with us. So we're adding lots of new users and new payers, but we're also really benefiting from these older cohorts that have been with us for a while which increased monetization over time, that's a really good.
Rate trend places like Europe , and APAC are still newer markets for us in the sense.
Level of penetration of those markets is far lower and we're still building our payer base that will compound over time.
We are in Europe and in APAC.
Those markets are more aged up at the beginning then that is the U S, which started out with a younger user base and then ultimately aged up and you can see in those markets. We still have not gotten back to where the monetization was at the peak of Covid, yet pretty good growth in APAC and then again as I said in Europe , It's just a mix shift between Super high growth right now in eastern.
Slightly less growth in western Europe in those tumors that diversion in terms of the economic benefits.
Ultimately in certain markets in Europe , and Asia Pacific.
The monetization should be fairly close to the wealth in that part of the world and you can track GDP per capita pretty closely and.
Places like U K and N Z, we've seen very similar monetization to what we have in the U S and Canada.
So there are other parts of Western Europe , where I think that will be ultimately be true in Asia Pacific.
Southeast Asia is very different than Japan, so as Dan talked earlier, Japan's growing very quickly.
It's still a relatively small amount of our APAC user base engagement and monetization, but over time that trend will move very much towards.
But in Japan will move very much towards what we see in the U S and Canada. So we'll just have to watch it over time, but it will definitely it will definitely move up over time, and I will call out that even though rest of world is a much lower number.
We've sort of built a dominant user base and engagement base in places like Latin America and <unk>.
And that has served us incredibly well, it's fantastic growth and strong.
Bookings cohorts there as well.
Got it.
I appreciate that color and then I guess, just one follow up for.
David on the on the advertising product I know, it's really early what's what's been the reception from brands or the gravitating towards a certain type of AD.
Finding brands that would normally engage with roadblocks, but now they can because there you have a short form opportunity here just kind of curious what the what the early commentary is and how your views have been shaped around advertising.
There's two types of advertising visions that we have on roadblocks I would say one is traditional which's roadblocks as a platform where an image from a brand can show up on a virtual Billboard and any experience anywhere so imagine.
One of our partners is introducing a new movie in for one or two days they want people throughout roadblocks to see.
<unk> poster or something like that.
What is much bigger and more disruptive is the notion of gently offering advertisers the ability to bring people to their experience and explore it in three D. We've already shared some of our partnerships Nike band's world Gucci Garden.
<unk> the NFL experience.
These are called portal ads and these allow in a native noninvasive way.
For users who are hanging out on roadblocks, who might want to jump into that experience to go there and experience that this is a new ad format.
It's a format where people go and experience something in <unk> 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 and this is where we're seeing early great signal. Once again you saw the quote from the NFL. So.
So we will keep you up to date on it.
Very bullish on it will essentially be creating this new type of advertising market and were fortunate on roadblocks that we have so much engagement $14 5 billion hours in Q1 that it's a fertile place too to really launch this so more.
More to come but great early signals and especially on portal ads.
Got it thank you guys.
Your next question comes from the line of Tom Champion with Piper Sandler Your line is open.
Hi, This is Tim on for Tom Thanks for taking the question I just had one for David on the game fund.
Can you talk about the progress here how much funding has been used inception to date.
Yes, we are familiar with frontline's, but it's sort of like the hit rate high enough that we could expect.
More game funds were.
Something similar in the future.
Yes.
Yes, I'll have Mike dig up the numbers well Im chatting, if we can find them for you and if they are public I want to highlight.
The primary way roadblocks has grown and always will grow is self service and I want to highlight that the primary way, we've gotten to where we are all of the.
The majority of the experiences on roadblocks and we're familiar with all of them have gotten there with literally no intervention. We've used the game fund and I want to highlight we also have an educational community fund to jumpstart certain areas in the case of the game fund.
Wanted to help developers take the risk of creating experiences that might be more attractive for older players I want to highlight side by side. We're doing the same thing in education. So the work we've done with first robotics. The work we've done with the Boston Museum of science or somewhat similar in that we are jumpstarting educational.
Experiences I don't want to quote where we May go but you could imagine in addition to experiences for older players or for education, because there is the opportunity for experiences around.
Mental health there is the opportunity for experiences around working together in a <unk> office that are also things that we may or May fund someday, we're going to pull up the numbers and see if we can share anything with you on the actual numbers yeah. So Jim the fund is caremark that $25 million, we have not spent all of that capital.
But today's point, while we are very happy with some of the performance.
The experiences in the game plan that we do track it all the time and we look at it on a weekly basis.
The vast majority of the experiences on the platform or our self started and just exist on the economics of our platform.
Great. Thank you.
Thanks.
Your next question is from the line of Jonathan Kees with Daiwa. Your line is open.
Great. Good morning, guys and thanks for taking my questions I wanted to I guess follow up on Dave's commentary about the ads.
The two types of ads.
The address but more specifically, how thats going to be delivered.
The <unk>.
Self serve you guys have been conservative in terms of.
Its contribution.
To the top line and kind of push it more towards 2024, so I just find kind of interesting youre not talking about a.
Testing of that in.
In currently going on and they will make a contribution in Q2, albeit nothing material. So just wanted to among other things can update in terms of.
Of the AD rollout.
Self serve specifically and when it could be contributing somewhat materially.
Yes, I'll comment we expect this year to rollout self service on this essentially a full AD server for both image and portal ads.
Something thats allow.
Allows advertisers to.
On their own published these types of experiences to roadblocks.
We are being very conservative on this we do expect to make.
I don't know if we would call it significant revenue Mike I'll, let you comment on that as far as what our internal things are but we're not sharing our forecast externally.
Yeah I mean.
That would be something in the second quarter, and we'll talk more about it after that.
I certainly wouldn't be changing.
Models for 2023 based on advertising today.
Got it got it that's all.
And if I may just this one is more of a.
Updates.
You talked about the layered clothing.
The number of users just wondering with the number of users are for this last quarter.
Yes, we'll see if we can dig it out I want to I want to highlight the bigger thing that's happening here.
Which is this year the migration to everything on our platform being created by our community and that includes clothing Tech Avatar Tech and it includes the migration to the point, where every avatar can be animated and have facial animation as well.
So view layered clothing.
As the first step towards a highly user created UGC avatar system with what we believe will be.
A big enhancement on the diversity.
And breadth of the type of avatars on the system and layered clothing as maybe what we'd call a person metric on that once again, we're pulling up some numbers to see what we can share with you yes. Jonathan This is actually a current number so meaning in may but 267 million users have acquired at least a single item that's layered clothing.
Great that was helpful, but the big jump two from last quarter too.
So thanks.
Thanks Rod.
Thank you.
We have time for one more question from the line of Brandon Ross with Lake Chegg Partners. Your line is open hey.
Thanks for taking the question just wanted to end the call kind of where it started with this cost discussion and this may be an unpopular for instance, with the investment community, but it sounds like you have so many opportunities, especially when it comes to things like generative AI.
Why.
What are you, leaving on the table by actually taking some margin and.
And not investing more or.
Are there opportunities that you could be speeding up or.
Expediting in any way or uncovering and especially in the wake of the competition that was discussed earlier from epic. Thank you.
I want to highlight that.
We continue to hire rapidly and we've got a very mature product engineering platform right now and we're going to continue hiring all the way through the end of this year next year and the year beyond we we think were who are really almost optimal hiring rates starts to intersect our bookings growth.
In Q1 of next year. So we don't believe we're leaving anything on the table Hey, Brandon It's Mike.
Yeah.
Interesting question I. Appreciate we appreciate the question, it's really helpful to look at the business over the last maybe three years or so is that covers the beginning of Covid and where we are today.
Triples, the number of.
People.
More than triple the amount of spend on infrastructure I think we spent over $700 million on.
Growing and improving our infrastructure.
Hopefully what you heard today was.
The fact that bookings growth has really accelerated allows that growth rate to exceed the rates of investment in head count and an infrastructure not that we are in any way.
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Reducing dramatically those investments we have always tried as you look at the history of the company.
I think one of the best examples of sustainable growth that I've ever seen a consistent investment in things that make the business great and differentiated.
It's organic growth never trying to accelerate our user base.
Letting the products driving the user base that we deserve and constant investment in innovating and extending our lead constant investment in the developer community and a content is growing and getting better all the time those things are just so much a part of what we do.
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We're not thinking any dramatic steps, but we do find ourselves at a point right now where the bookings growth has really re accelerated and so we feel comfortable that that number can be ahead of the key investments, but we will always be focused on innovating and staying a step ahead.
We are so it's a it really is a balance.
I Love the way we ended the call and appreciate the question and both sides of this because.
There is.
There really are two sides. There is investing to stay ahead and is also proving that you have a business model that is long term sustainable if anything proves that out just look at the last six quarters and the business has literally been at $3 billion of cash over the last six quarters continuing to invest.
Continuing to spend.
I have a $1 billion over the last six quarters and infrastructure and yet cash neutral because the business itself generates so much operating cash. So we really feel like we balanced it very well up until now and hope that will continue to balance those things over the over the next few quarters and next few years.
But that's the way we've always run the business and ultimately we think that drives the most long term value. So we appreciate the question.
Thank you.
Well, thank you for joining us today and Thats correct.
Grant you can close it out.
Thank you. This does conclude today's conference call. Thank you for your participation you may now disconnect.
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