Q3 2023 Roblox Corp Earnings Call
Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the roadblocks third quarter 2023 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during 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 I will now turn the conference over to <unk>.
Stephanie No Tony Senior Director Financial Communications, Stephanie you may begin.
Oh, Thank you Christina good morning, everyone. Thank you for joining our Q&A session to discuss world walks as Q3 2023 results with me today is robots co founder and CEO, David <unk> and CFO, Mike Guthrie as a reminder, our shareholder letter press release SEC filings supply.
All slides and a replay of today's call can be found on our Investor Relations website at IR adult robots Dot com 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 expectations of our business future final.
Actual results and strategy forward looking statements 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 are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q, you should not rely.
On a forward looking statements as predictions of future events, 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 press release and supplemental slides with that I'll turn the call over to Jay.
Eight.
And welcome everyone to our robots Q3 2023 earnings call. A couple of quick highlights we are going to continue to talk about our delivering our growth strategy highlighting our vision of re imagining how we come together.
And continued moving forward on our mission to connect 1 billion people with optimism and stability will highlight some of the product velocity new monetization opportunities. We've been working on and we're also going to give an update on our commitment to deliver operating leverage which we shared in our letter.
Finally, highlighting the really the breadth of our business, which is connecting people around the world connecting people of all ages and all backgrounds and highlighting the complexity of the business that spans so many cohorts two day for a first time, we are going to give you a little hint at guidance.
Looking forward and Mike will do that after my discussion.
Diving into Q3.
<unk> strong quarter, all around GAAP revenue Q3, $713 million up 38% over Q3 2022.
Diving more into how we run the business, which is on bookings and cash bookings of $839 5 million up 20% year on year cash flow from operations of $112 million and $59 million of free cash flow our da use here.
70 million, which is up 20.
20% year on year total hours of engagement.
16 billion in Q3, which is up 20% year on year and from a liquidity standpoint over $2 billion of net liquidity and $3 1 billion of total cash equivalents and investments.
And finally on a covenant adjusted EBITDA basis, we had $81 million.
So let's talk a bit about our gross growth initiatives. This goes all the way back to our S. One filing which is connecting everyone around the world a platform for every one of all ages roadblocks everywhere in a vibrant economy.
Connecting the world just want to highlight not just the growth in many really big future areas around the world, but also the monetization acceleration in these areas.
Japan da use up 66% hours up 64% bookings up 174%.
Germany, Dia use 27% hours, 30% bookings up 75%.
<unk>, 23% hours, 23% bookings, 62% and India, a huge opportunity for roadblocks.
<unk> up 53% hours, 49%.
Bookings up 76%.
We continue to also showed great progress in our vision that roadblocks as a platform for everyone regardless of age on the <unk> side in our 13 through 16 cohort, we saw 22% growth 17 through 24, 27% growth in 'twenty five.
Went up 25% growth on the <unk> side.
Ours is very similar growth 13 through 16, and 23% 17 through 24, 29% and twenty-five enough.
Hours of engagement up 28% year on year.
On our vision that robotics is everywhere and this goes to the vision that immersive three D. Multi player in the cloud stimulation that connects and helps people communicate.
Run on every device we brought forward two new devices recently first embedded quest, which as of October 31st had over $2 million lifetime installs and then Sony Playstation which we announced at our developer conference and launched on October 10.
Has had over 15 million downloads in October.
Our goal is really for robots to be everywhere on the size of a vibrant economy. We're innovating in many ways, they're continuing to grow our monthly unique payers, we had $14 7 million average monthly unique payers in the quarter, which is a record.
We have some really exciting innovative extensions to the platform coming one is really in the vision of roadblocks, giving our developers and creators the tools to run their own business, we're going to be introducing subscriptions for developers so their experiences.
Subscriptions, we plan on launching that this month.
Advertising, we're going to share a lot more at Investor day, but we are making amazing progress here, we've hired Stephanie leatham as our VP of global partnerships to help supercharge. This business. We have also in addition to portal and image AD started testing video ads in Q4 and looking for.
Launch of that in 2024, we will share more of this at Investor day.
On the overall product velocity in the background, we shared a lot of our 2024 vision at our developer conference in.
September and those videos are all available online for anyone who's interested.
Really strong pipeline of great innovation.
Some of the big things, we've been working around which include voice and the avatar stimulation to more and more real time communication our voice via used for the quarter are now up 240% year on year on Avatar side, we are now.
Live with what we call UGC avatars, which is user generated content for avatars, allowing the community to par.
Dissipate and the creation of avatars.
And we're now live with facial animation and overtime, we expect all avatars on the platform to support real time camera tracking and facial animation.
At our developer conference, we introduced a new platform called roadblocks connect which is a showcase of communication technology.
That will be open source and shows US a set of Apis that allow creators to embed communication capabilities into their own experience, including on mobile ringing the phone to join with friends.
And <unk>.
Couple of highlights I will touch more on Investor day on the AI side, we continue behind the scenes to more and more in corporate.
AI up and down the stack and in addition to of course added capabilities like roadblocks assistant, which we rolled out in October that Youll hear more about on Investor day.
And roblox other ways of generating things I think we are behind the scenes I just want to highlight the efficiency that this is bringing us both on safety and moderation.
We're moving many of our moderation pipelines more and more to AI and this is simultaneously increasing quality as well as cost and you can see that in our increased operating leverage.
Finally, just want to highlight that at Investor day in a week, we'll be covering a lot more of this.
And now I'm going to pass it over to Mike for some more discussion on our operating leverage.
Morning, everybody and thanks for joining and Dave did a great job of covering the highlights I just want to point out that it was another quarter of <unk>.
Very solid growth and that growth was accompanied with a management of the growth in expense in our business in particular, our fixed costs, which we've been talking about for the last few quarters, which are personnel costs and infrastructure costs. Both of those grew at a substantially lower rate this past quarter and.
And for interest in safety grew at a lower rate than our bookings growth, which is something we had talked about and indicated what happened. This quarter. So we're quite happy with that that provides quite a bit of operating leverage and we see that.
We're now in a moment, where we can see our operating costs growing at a rate that trails, our topline growth, which is exciting and should provide healthy operating leverage in the future. We'll talk more about that at Investor Day I am sure on this call and at the same time, we've now completed our Ashburn, Virginia datacenter and so capital expenditures.
In the third quarter were down significantly from both last year and last quarter.
We.
We now have enough capacity to handle.
Even significant growth in traffic all of next year, so substantially less capital expenditures in 2024 than <unk> seen over the last two years, which is a good setup for.
Not just operating leverage but also cash generation.
Finally, as we mentioned in our shareholder letter. This morning, beginning next year in 2024, we intend to begin providing financial guidance.
Typically when we report our annual results. Each February we will provide guidance for the ensuing full year and for the first quarter of that year for each ensuing quarter. We will provide forward guidance for the next quarter and update our annual guidance. This is pretty standard fare.
That's on our Q4 earnings call next February we will provide guidance for the full fiscal year of 2024 and for Q1 of 2024 and May of next year, we will provide guidance for Q2 of 'twenty four and update the guidance for the full year and so on.
We will guide on revenue bookings net income and margins.
We believe bookings provides a timely or indication of trends in our operating results that are not necessarily reflected in our revenue because we recognize the majority of revenue over the estimated average lifetime of the paying user the change in deferred revenue constitutes the vast majority of the reconciling differences from revenue to bookings.
Since our first quarterly guidance will be for Q1 of 2024, we expect the question today about our views on consensus numbers for Q4 2023, the last quarter for which we will not provide guidance and since we haven't.
Provided any guidance information, we just wanted to reflect that based on Factset as of November the seven.
Consensus for Q4 2023 is as follows bookings of 1.065 billion adjusted.
Adjusted EBITDA of $173 $2 million, which correlates to our calculation of covenant adjusted EBITDA and revenue of $809 3 million. While we are not going to provide formal guidance for Q4, we are comfortable with the consensus estimates for bookings and adjusted EBITDA.
Concerning consensus revenue, we want to remind everyone that revenue is much more complicated to forecast and model than our bookings paying users can buy both consumable and durable virtual goods books.
Bookings related to consumable virtual goods are recognized essentially immediately while bookings related to durable virtual goods are recognized over the average life of a paying user which is currently 28 months the split between consumable virtual goods and durable virtual goods changes every month. In addition, the average life of the paying user can also change.
In any given quarter finally, because of the deferral period in any given quarter. The revenue recognized is much more to do with prior bookings and bookings.
For example, the growth in bookings over the past quarter, but largely be reflected in our future revenues.
Just as an example, I went back and looked at our bookings in the supplemental materials. If you think about the 28 months average life of a payer thats about nine to 10 quarters. So if you look at the growth rate of bookings over the last nine to 10 quarters, you'll see that it is those growth rates are below the consensus revenue estimate which was at about 40%.
So we expect revenue in Q4, when we do the work on virtual versus consumable and the average life of a payer assuming there is no change to that average like in Q4, we expect revenue in Q4 will be approximately $740 to $750 million or a year over year growth rate of approximately 28%.
So with that we're done with our opening remarks, and we welcome questions.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad. We also would like if you could ask one question and one follow up. Your first question comes from the line of Jason Kelson from Canaccord Genuity. Please go ahead.
Great Good morning, and congrats on the strong results.
Just wondering exchange fees as a percent of bookings were down sequentially I'm curious.
Anything one time that drove that and just higher level, how you view continuing to reinvest in the developer community.
Do you see leverage some other areas. Thanks.
Hi, Jason we absolutely.
Top priority is to continue to invest in the developer community. In fact, the strong results that you've seen over the last few quarters is a direct result.
An explosion of creativity new content.
Existing content being updated and upgraded.
Appealing more and more to our user base. So top priority is to continue to invest in our developer community. The sequential decline is.
Primarily related to a.
An issue with our prepaid cards. So there was a there was an ability and we can go through this in more detail. If you want to get on a call with US one on one but there was an ability until recently to actually buy robust at a discount through prepaid cards and certain currencies and as a result.
The bookings number and the <unk>.
<unk> number in the deck number was artificially inflated versus the bookings number the user with getting extra robot per dollar. We have now closed that and Theyre now getting they are not buying robots at the at the right price that means they get slightly fewer.
Robots, which means the <unk> related to those bookings are slightly lower but going forward.
That's that loophole effectively is closed and we will continue to be driving lots of opportunities for developers to grow the overall dollars in the system and the percentage of the economics that they get and we'll talk more about that at Investor day, and happy to discuss on this call as well.
We highlighted at our developer conference the growth rate of the top 10, the top 100 the top.
Developers and those all continue to grow quite rapidly.
As far as their revenue.
Great. That's really helpful and just one quick follow up and the shareholder you called out bookings growth really strong in Western Europe, and East Asia I'm. Just curious if there was any underlying drivers of that performance that stood out in the quarter. Thank you.
Across Western Europe, and East Asia, we have a few benefits that are really pushing the bookings growth rate number one we have payer cohorts that are getting.
More and more seniority and we know over time as payer cohorts are on the platform for longer periods of time, they tend to monetize better and so a lot of the payer cohorts are really hitting their stride in terms of maturity. Those are wealthy countries. So they have a lot of purchasing power and so we've done very well there.
We have seen lots of new content that has popped up in those markets.
And so lots of growth there and we're really growing across all ages in Western Europe, and East Asia from all the way from the youngest using the platform to aged up users I want to highlight also a core technology lesson on the monetization side and more on the user engagement side is also underlying some of this.
The quality of our platform in Japan has increased.
Rapidly over the last few years, we highlighted semantic search and some of the other things we've been doing there. So this is also a result of product quality and the quality of our automatic translation system.
Your next question comes from the line of Bernard Mctiernan from Needham <unk> Company. Please go ahead.
Great. Thanks.
Thanks for taking questions, maybe just to follow up on the last one you guys have been talking about Japan for a couple of quarters now or are there other kind of wealthy underpenetrated countries out there that is next on the list to target.
Well.
Germany, Spain, Italy, I mean, all throughout Western Europe, France, they're all growing really dramatically and as you know Bernie it's less about an immediate target and it's more about an organic growth.
That's driven as Dave said by Great product technology. The fact that translation in search of better the.
The fact that there is a local developer community sprouting up in those marketplaces. So.
It's organic and it and we believe very sustainable because it's organic and so we're targeting really users around the globe, including more and more users in the U S, Canada and markets that we're already very strong in but.
But the countries in Western Europe, and East Asia, just for showing particularly strong growth and very healthy monetization and highlighting when we talk about product quality in Japan, thus platform wide product quality, not Japan, only product quality and that goes all the way down to raw.
Performance on low end devices for example, which can help accelerate countries like India search can help accelerate all countries. So really we target the platform as a whole generally.
Understood and then just on the cost saving initiatives.
And talking about internal efficiencies.
Especially in infrastructure, obviously, you guys are doing a great job pushing on that.
It feels like just in the shareholder letter the commentary that there might be.
Maybe more to do with you're discovering that there is more to do is that the right read, especially in infrastructure, just we see internal efficiency initiatives. It sounds like it might be a broader push than just growing at below bookings, but just wanted to double click on it.
I want to highlight a couple of efficiencies that we actually get from a quest for quality as opposed to request for raw efficiency.
More and more as our safety platform moves to A&H AI, it's been driven by requests for just increasing the quality of everything we do around safety and moderation a byproduct of that is a lot of efficiency I think on the infra side as we get into a high level of risk.
Zillions that gives us a lot more room going forward to grow without a lot of capex. So some of these are are less discoveries are natural evolutions.
And maybe just add one last thing to that.
The growth rate.
We had to build into through Covid was so significant that.
We made a decision to invest heavily and aggressively and we're happy that we did and obviously the platform and the scale of the platform is much much larger and much more capable than it was before.
But now we are sort of through that.
Macro adjustment of hyper hyper growth.
The economy took when we started when the pandemic started.
It should be much more rational and reasonable and predictable growth in and that allows us to invest and be more efficient really throughout the income statement and the balance sheet.
I highlight one other nuance on efficiency and this gets into what we're doing on voice safety invoice moderation.
Very sophisticated work to help with voice safety and stability and we're doing this on our own infrastructure and there is incredible efficiency by using the same infrared that we used for real time <unk> simulation of all of our players using that exact same infra for.
In for rents for voice safety.
Understood. Thank you both.
Okay.
Your next question comes from the line of Omar <unk> from Bank of America. Please go ahead.
Hey, guys. Thanks for taking the question I actually wanted to double click a little bit more on this infrastructure question.
Because the numbers are.
Quite remarkable.
So if I just look at your results it looks like your hours in the third quarter. Your total engagement hours were up 15%.
But your infrastructure cost per hour was down 18%.
So thats.
Pretty pretty strong and your infrastructure costs came in well below my estimates.
So is there are there any one time.
Events that caused this.
Very high cost savings on that line and how should we think about your infrastructure cost per hour.
Kind of going forward you would they be at a similar rate as they were in this quarter or.
Or will they kind of come back up to where they were in the second quarter.
And then I have a follow up.
Okay.
Omar actually feel the onetime event has happened in the past, which was on core data centers, a fair amount of capex to build out resiliency and we're through that now and we have resiliency on core data centers on edge data centers, where we run simulation.
Once again, we've got great efficiency, there on that capacity. So I don't think Theres a forward event real I think we've done a lot of that in the past.
And then Omar.
As it relates to the first thing you got to comment about power is growing at 15% I want to make sure I understood that.
Hours grew at 20%.
But just I'm, just talking about quarter on quarter, Mike quarter on quarter in Europe their hours brought it 15% yet your cost per hour was down 18% quarter on quarter.
Understood.
So we're going to show some more data at Investor day, but one of the factors is what Dave just talked about which was investment.
Building a lot of capacity not unlike building a factory or anything else now absorbing that that capacity. The second one is challenging the team to focus on our cost to serve target that declines over time and to get more efficient as an engineered engineering organization.
And they've done an incredible job and we believe have plenty in front of them and they're going to continue to drive down this metric of cost per thousand hours served.
So we actually see continued leverage in the infrastructure line to answer your question in that that should be reflected in the future in lower.
Lower numbers as a percentage on the income statement lower numbers as a percentage of either bookings or revenue.
Okay awesome.
Okay, and then maybe just focusing on.
Sort of your topline in your guidance.
What was it that increased your confidence in your ability to guide accurately.
As compared to let's say three to six months ago.
I wanted to do a shout out to the whole financial modeling theme, we've always had a fair amount of confidence in our ability to model. The future. So this is less about confidence Mike maybe can comment to the real real world.
Well first of all you said.
The existing guidance. So we haven't given any guidance yet we're going to guide for the fourth quarter I merely commented on on Q4.
<unk>.
A number of reasons.
There is certainly demand.
We've talked to a lot of investors, who would really like a deeper insight into our forecasting and the best way to do that is through guidance and.
I think having gone through such a.
A big cycle of Covid and coming out of Covid and the big investments that we've made and now with margins and operating leverage coming out the other side. It actually does become easier to have that conversation.
And show people the models going forward. So I think it'll be a healthy dynamic for everybody I want to highlight the complex is not really complexity, but the breadth and the scope of our vision internally. We're building a platform that is connecting people around the world and a bunch of different regions in <unk>.
Current countries, a bunch of different age groups and more and more moving to several economic models that support that and virtual currency advertising and more to come.
And then on top of that we have complexities on the GAAP revenue side as Mike mentioned as far as deferred revenue fairly broad ambitious vision.
And we think guidance can help that complexity.
Awesome. Thank you guys.
Thanks Omar.
Your next question comes from the line of Clark Lampion from BPI. Please go ahead.
Thanks, Good morning.
I have a question on average spend a great. So you guys highlighted a number of products throughout the prepared remarks that team.
Whether in the late stages of I guess sort of pre release early release right now that seem likely to be accretive to spending are we at a point now where maybe those products collectively can offset some of the mix shift headwinds to monetization, we see from international expansion and maybe average spending from here sort of lift going.
Forward.
That's question one.
Good.
Talk to you first thing I would like to highlight that in the third quarter of 2003, so the average payer monetize at $19 and <unk> over the quarter, which was up from $18 11.
Prior Q3 so.
To monetization on our payer basis has been.
Creeping up over the last few quarters on a year over year basis and is basically.
Catching up to those peak moments.
Pandemic win win monetization was incredibly high overall, if you look at it on a DAU basis.
Some of the discussion around the prepaid cards that I mentioned earlier.
There's been a bit of a drag on it. So I think we'll work through that as well. So yes, I do believe strongly optimistic about monetization overall in.
In addition, we as Dave just highlighted the platform is built now 70 million daily active users with a virtual economy that is very large and growing at a very healthy clip and it is set up as we've always talked about and goes back to when we went public.
We will grow the virtual economies are vibrant economies on top of our platform, including advertising and other things that we'll talk about in Investor day, those things as a funnel and obviously will also move monetization.
So we're pretty excited about that so overall as we look at monetization, but whether its per user or per payer.
We like the trends that we're seeing right now.
Makes sense and I'll take that.
There's a little bit there's a little bit of a contract sometimes about the geographic mix mix shift, which I think is what youre getting at I, just want to remind everybody that in the U S and Canada as an example.
As users as users grow in terms of older users they monetize better there's a mix shift going on even in our core.
So even with a younger user base, where monetization and bookings are growing more slowly we are definitely seeing a positive mix shift the older users who do spend more so.
It is not necessarily the case it just because other markets are growing faster.
Detrimental effect on on the rate of bookings per user or prepare and overall bookings growth is really what we focus on.
Understood you talked about economy changes also it looked like there were some adjustments that were made to sort of packaging and then the <unk>.
<unk> per unit of currency values earlier this quarter could you talk about maybe how those packages are going to sort of affect the user and developer community. If at all and maybe secondarily, how how could those changes I guess impact the P&L moving forward. Thanks.
I just wanted to highlight you may be seeing.
Small experiments that we're constantly running on the economy, we don't have any big plans for a massive economy shifts consider these nudges right now.
Thank you.
Your next question comes from the line of Eric Handler from Ross M. Kim. Please go ahead.
Good morning, and thanks for the question.
Couple of things on advertising.
First I imagine, it's very small but was there any advertising contributions in the third quarter.
Hey, Eric there were and Youre correct they were very small.
Okay.
Yeah.
I do want a little bit of a preface to investor day, while the actual AD revenue was pretty small.
There is a vibrant economy around brands and the content that brands are publishing on the platform and.
There is a virtual economy related to brands just like there is a virtual economy.
The original economy around brands is integrated into our virtual economy overall, so while the AD dollars themselves, where small they are already contributing to the to the platform.
Great and then maybe I'm getting ahead of myself here and we'll talk more next week, but now that you are testing.
<unk> advertising.
Look at sort of the suite that you have for advertising I imagine.
The digital Billboards are probably at the low end in terms of pricing.
You have got this unique concept with portals and now you have video can you maybe talk about the value proposition of those three buckets.
Yes.
Take a step back on the visionary value proposition and then we can.
Paint a picture of a year or two out and back into it and once again. This is no promise of product delivery or any future revenue.
The vision really is ultimately what we do and realize for example hanging out with friends at a shopping mall going into various locations browsing trying on and literally buying is going to be fully replicated on our platform and ultimately that buying behavior will go.
The virtual goods as well as Sunday physical goods as well and this will all happen on the robotics platform. So advertising is a great way for brands.
We've mentioned some of our great partners, Gucci vans, and Nike and whatever to bring essentially friends traffic to their three D virtual destination, where people can interact with the brands to watch videos try stuff on and then ultimately by virtual and physical goods.
So we actually think the advertising is just the first step to really a fully closed loop long term shopping solution.
Eric.
A quick comment because we're going to cover this more on Investor day and casino.
It runs this business robots will talk more about it.
You're really talking about portal ads and video ads and there are going to be more than one type of video ads, we're going to talk about multiple products I wouldn't underestimate the value of video ads portals are very interesting and unique.
Also have a.
Massive user base in a very interesting age demographic is highly highly engaged so we really see value for brands and CMO.
Look at various products on the platform ultimately we are incredibly excited about portals and we've seen.
Good activity and when brands engage at that level, where they have their own <unk>.
Assistant experiences it really as a base for a lot of other interesting engagement and monetization in the future, but there is a real there's a real breath of products.
Great. Thank you very much.
<unk>.
Your next question comes from the line of Brandon Ross from Light shed. Please go ahead.
Hi, you recently launched on a couple of new platforms, including Sony Playstation We're just wondering if theres any way to size the impact.
Those type of launches on Ta, you or an engagement and.
If theres an update on any more.
Platforms to come.
Hello.
I would say we wouldn't share any platform by platform engagement estimates I think it's safe to say, it's doing better than we expected and I think the reason, it's doing better than expected.
So much amazing content that is already running on phones tablets computers other console.
That's really just an accelerant of that existing content with a new destination.
And I actually Brendan I would add to that it's also.
Yeah, a little bit more of a med cast losses.
Those people on the network and connect to other people on phones and desktops and other things and so we are seeing.
And the impact that maybe we can't just explained with a discrete view of what's happening on on Playstation It's really the benefit that we're seeing all over but we're going to talk about download numbers next week and everything they are very strong and very healthy. So we're super excited about it but I think it's.
Sort of a multiplicative and on future platforms. The vision would be immersive three D multiplayer communication and connection technology. Ultimately you should run on any form factor and.
And any device.
Yeah.
Great and then on the <unk>.
To clarify from earlier was it the loop the.
The loophole that lead to FX only 20% of bookings in the quarter and then generally on <unk>. How are you thinking about your profit and cash flow generation.
Off the leverage.
Kind of cost control versus giving back to the Dev community kind of what goes into that decision and how will advertising affect that.
So there's a lot in that question. So first and foremost our goal is to continue to push.
High growth index to the community.
Investment that we make there is.
Is why we have great content and growing content and so we're always looking for ways to grow that overall, our our desire branded on leverage and cash flow is really to leverage the efficiency in our fixed cost.
Which is around head count and infrastructure those are the primary fixed cost in the business generally over the last few years as Cogs has as we've seen efficiency and Cogs, we've tried to share those pretty much dollar for dollar with the community.
And that's been really effective and so historically, if you went back three or four years.
<unk> rates were quite a bit lower than they are today. So we're in a much more sustainable place and an ability to continue to push more of those economics to the developers as we open up the economy things like advertising.
We fully intend for the community to participate.
And those economics and.
So we're really excited about the scale and the growth and the ability to continue to.
First in it because that's really what's driving the flywheel its content and users and that investment that we make pays back. So we're always trying to grow it.
Awesome. Thank you.
Thanks Brandon.
Your next question comes from the line of Matthew cost from Morgan Stanley. Please go ahead.
Hi, everybody. Thanks for taking the questions maybe I'll start with one for Dave and then one for Mike just on on the AI tools, you mentioned, the moderation pipeline shifting more in that direction and then a lot of exciting use cases for those new tools.
Are you still on track to build everything Youre planning to build from an AI perspective on open source ore from scratch and is that from a capex and head count perspective is that fully baked into kind of your view from here.
Yes, I think we have so much breath in the AI highly.
Highlighted we've got 70 ml pipelines running right now inside the company that goes all the way from our safety systems moderation systems real time translation systems gets into our search and discovery system and then it gets into more of the user facing things like robots assistant.
I think the big takeaway is we want to run.
Super High volume inference for example voice.
As much as possible on our own hardware. So we can do this extremely efficiently and I would highlight on our edge data centers using as much as possible. The same hardware to run influence. It gives us the ability in parts of the world that are not as active to use that for inference as.
As far as the collection of tools, we're using I would say generally yes yesterday us open source the.
Markets and a really interesting time as far as what people are building and training in tuning and distilling and optimizing internally and we're building a full AI internal platform that many of our teams will then use for high performance improves.
Thanks, and then for Mike I, just wanted to revisit the goal of $800 million of debt ex that you guys mentioned last quarter I think in order to hit that.
Versus consensus you'd need to do 26% of bookings Thats step ex next quarter I guess are you reiterating the $800 million target.
So I think we've talked about this many many times so it would be unlikely for us to hit $800 million. This year, but if you look at what we are accomplishing this year, it's a massive.
Pool of capital that has grown at a very high rates over the last few years and we're super excited about what we are delivering to developers. This year just like we're excited with the topline growth in the business and the operating margins of the business. So.
Incredibly proud of the numbers that we're printing and incredibly proud of how the developers are sharing in that and we're going to continue to drive efficiencies across the business and that's what we're going to focus on.
Great. Thank you.
Your next question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead.
Thanks, so much for taking the questions. Maybe two that are sort of follow ups to topics, we've talked about and hopefully not front running next week, but to put a finer point on it when you think about the developer community and lighting platform investments to meet the needs of the developer community. What are your highest priority items as you move out of 2023.
And into 2024, and then to come back on the infrastructure investment is there a way to think about capacity utilization in your data Center network and how much excess capacity you have right now to better understand engagement growth and filling that capacity.
Where capex could be.
Coming in under expectations like now versus a more normalized trend longer term. Thanks, so much.
Yes, Hey, I'm going to go really fast on three points on core data centers want to highlight and just our info platform teams ruthlessly improving quality efficiency performance of all of our components are there to really squeeze out as much as we can on the cost side.
Also on our cloud expenses were being very very thoughtful they're moving as much cost internally as possible on the edge capacity just highlighted ability to run influence on same grid, where we run a real time simulation. So we can run more and more inference for Super Super low.
Cost, so a little bit of a vision there as well.
And Eric.
I'm not going to give you a direct number on capacity, but I would suggest to you that our capacity has quite a long way to go.
Through 2024 for sure before we would have to start thinking about adding capacity.
So we're in a really comfortable place right now.
We have time for one more question Tom champion from Piper Sandler. Please go ahead.
Hi, Thanks, This is Jim on for Tom.
Just a quick one on cost of revenue. So we've seen this shift toward bookings through.
Lower fee channels, I guess can we sort of talk about.
Has that trend continued and how should we think about <unk>.
Modelings like leverage in that line going forward I'll go first and really high level. Unlike you can talk about modeling.
Youre highlighting more of the complexity once again consumable durable different mix shift as an example developer subscriptions on the platform over time with some of our partners may have different cogs than other type of robots purchases, which bodes well for Cogs.
Our prepaid business bodes well for Cogs as well, Mike May talk more about the mix shift, yes, hey, Tom So we've definitely been able to provide some leverage over time there are some interesting.
Areas, where we could.
Diovan, but generally are.
A real focus on operating leverage right now is infrastructure and personnel and we're doing a really good job there.
Those are numbers that.
I think drive the vast majority of margin improvement over the next few years next couple of years at least.
To talk more about that at Investor Day, I think youre comfortable modeling.
Cogs at about where they are today for now thats the safe that's a fairly safe bet.
And think about operating leverage coming more from.
From our from people costs and from from <unk>.
Great. Thank you those are but those are those are much more in our control.
Thanks.
Okay.
I will now turn the call over to Stephanie for closing remarks.
Thank you for joining us today, and that's about it for us.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
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