Roblox Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Revenue grew 36% to $1.5 billion, while operating cash flow rose 60% and free cash flow increased 66% year over year to $294 million. Roblox ended the quarter with 123 million DAUs, up 10%.
  • Neutral Sentiment: International momentum remained strong, with DAUs increasing 67% in Japan and 64% in India; hours grew 61% and 59%, respectively. Roblox also benefited from users returning after the platform was unblocked in Russia.
  • Negative Sentiment: Bookings grew only 8% to $1.6 billion, as bookings per hour—especially among users under 13—fell below expectations. Engagement shifted away from highly monetizing viral games, while discovery changes prioritizing long-term retention created additional near-term monetization pressure.
  • Negative Sentiment: Roblox expects Q3 bookings of $1.58 billion to $1.65 billion, implying a 14% to 18% year-over-year decline, with monetization weakness likely to continue. The company withdrew updated full-year guidance and warned of margin pressure from fixed-cost deleveraging and higher AI-related infrastructure expenses.
  • Positive Sentiment: Management is investing in long-term growth through AI-powered creation tools such as Build, video and game discovery through Moments, broader 2D and 18-plus content, enhanced communications, and photorealistic multiplayer technology. Executives believe these initiatives can expand Roblox’s addressable market and eventually offset near-term monetization sacrifices.
AI Generated. May Contain Errors.
Earnings Conference Call
Roblox Q2 2026
00:00 / 00:00

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Operator

Good afternoon, everyone. My name is Regina, and I will be your conference operator today. Welcome to Roblox's Q2 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, simply press star, then the number one on your telephone keypad. We ask that you limit your initial question to one. I will now turn the call over to Jaime Morris, Roblox Head of Investor Relations. Jaime?

Jaime Morris
Jaime Morris
Head of Investor Relations at Roblox

Good afternoon, everyone. Thank you for joining us to discuss our Q2 2026 results. With me today is Roblox's co-founder and CEO, David Baszucki, and our Chief Financial Officer, Naveen Chopra. Before we begin, I would like to remind you that our commentary today may include forward-looking statements, which are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these risks, uncertainties, and assumptions are included in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. You should not rely on our forward-looking statements as predictions of future events, and we disclaim any obligation to update these statements except as required by law. During this call, we will also discuss certain non-GAAP financial measures.

Jaime Morris
Jaime Morris
Head of Investor Relations at Roblox

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.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Thank you. Good afternoon, and thank you for joining us. Today, I'll start with a few remarks about the quarter, and then I'll turn it over to Naveen to discuss results and guidance, and then I'll conclude with some important updates about how we plan to achieve our long-term goals. We remain steadfast in our goal to capture 10% of the global gaming market and an even greater share of the U.S. market. Against the backdrop of the incredible growth we delivered last year, in Q2, we delivered healthy year-over-year growth in users, hours, and cash flow. While bookings growth fell within our guidance range, it was below our internal goal, which we will discuss in detail on today's call. Before I hand it over to Naveen, I want to give some updates on the business. First, let's talk about safety.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

In the first part of this year, we made the decision to age check everyone on our platform and to limit chat only to those users who've age checked. We've made significant progress this quarter, and as a result, age check penetration has increased to 57% globally. In the first countries where we rolled it out, Australia is approaching 80%, and the U.S. and U.K. are at 70%. With the under 18 segments, we're making enormous progress, with the U.S. under 18 at 75%. In addition, of course, to our filters, industry-leading safety, we don't allow image sharing in chat, and in conjunction with age check, we implemented age banded communication. We've also introduced new comms products. We'll share a bit more about that. On the content side, in June, we successfully rolled out age-based Roblox Kids and Roblox Select.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

We believe accurate age data amplifies our conviction in the long-term growth potential for the platform. On the discovery side, in the last few months, we shared with our community our strategic decision to focus our discovery algorithms directly on measured long-term retention. We have seen this impact monetization, primarily in the U.S. under 13 cohort, and this has been exemplified by a lower frequency of impressions with games that emphasize short-term monetization rather than long-term retention. It's still early, but our data shows a positive lift in quality, stickier engagement games, and the benefits of higher retention, we believe, outweigh the near-term impacts we're seeing, as improved retention and engagement compound into future growth. I'm going to now turn it over to Naveen to address some specifics, and then I'll be back to talk about our future plans.

Naveen Chopra
CFO at Roblox

Thanks, Dave. I'm going to share a few details about the quarter and then also discuss updates to our outlook. For the quarter, revenue grew 36% to $1.5 billion, and bookings grew 8% to $1.6 billion. As Dave mentioned, this was at the low end of our guidance, and we'll discuss more about that in a moment. We finished the quarter with 123 million DAUs, up 10% year-over-year, and hours grew 5% to 29 billion. In addition to building on the existing scale we have in the United States, we continue to see strong year-over-year growth in many international markets. For example, DAUs in Japan grew 67%, DAUs in India grew 64%. Similarly, hours growth in Japan and India was 61% and 59%, respectively. We also saw users in Russia come back online as we were unblocked there late in the quarter.

Naveen Chopra
CFO at Roblox

On the bottom line, operating cash flow was up 60% year-on-year to $318 million, and free cash flow of $294 million was up 66% year-over-year. From a content perspective, our platform is getting more diversified while maintaining a steady velocity of new content

Naveen Chopra
CFO at Roblox

Case in point, three years ago, our top 10 games accounted for about 30% of all the hours engaged on Roblox. Today, the top 10 games account for approximately 20% of hours. In terms of user metrics, new user sign-up activity improved throughout the quarter, benefiting from seasonality and the reinstatement of Roblox in Russia. Retention of existing users remained stable, and engagement hours were in line with our expectations. Monetization, however, as measured in bookings per hour, was below our forecast, particularly with under-13 cohorts, and was the primary factor impacting our bookings performance. We attribute the unforeseen monetization shortfall to a greater than expected shift of engagement from high monetizing 2025 vintage viral games to a combination of new and evergreen experiences with lower hourly monetization.

Naveen Chopra
CFO at Roblox

This underlying mix shift was compounded by changes in our recommendation algorithm, which optimizes for long-term retention and is therefore providing more impressions for highly retentive games at the expense of near-term monetization. In Q2, the bookings impact of this trade-off on younger users was greater than we anticipated. Although these discovery changes add to the variability of our business, our testing suggests that the long-term benefit to retention will more than offset the short-term monetization hit. Particularly as we continue to improve the algorithms by doing things like using age check data to better target recommendations by region and age cohort, which over time should help mitigate the monetization headwind we saw in Q2. Another, albeit less significant factor in the monetization shortfall, was the impact of our decision to disable the sale of cross-experience game passes.

Naveen Chopra
CFO at Roblox

Looking ahead to Q3, we expect sequential DAU trends to benefit from seasonality, the unblocking of Roblox in Russia, and our discovery changes. Monetization weakness is likely to continue. As a result, we forecast Q3 bookings to be between $1.58 billion and $1.65 billion, which given the tough comparisons, translates to a year-over-year decline of 14%-18%. From a margin perspective, the reduction in bookings will result in fixed cost de-leveraging. Additionally, investments in AI-powered initiatives like Build, Roblox Reality, and Moments are expected to result in higher infrastructure costs. For Q4, increasing variability and continued updates to our platform lead to a wide range of potential outcomes, therefore, we are not providing revised full-year guidance at this time.

Naveen Chopra
CFO at Roblox

While our expectations for the remainder of the year have changed significantly, we have conviction that we're making the right trade-off to continue our role as an industry disruptor. Investments in AI, content diversification, long-term retention, and safety, though creating near-term friction, position us to maximize our share of the global gaming market. With that, I'll pass it back to Dave to talk about some of our future plans.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Thanks, Naveen. Since we started the company, we've been on a mission to support play around the world, and we believe the world needs more play. We can all see it right now, given in light of really everything going on in the world. This fundamental need is part of what gives really all of us conviction in Roblox's ability to deliver long-term growth in excess of 20%. We set our goal of expanding play everywhere with a target of 10% of global gaming running on Roblox. In the U.S., we've shared that our goal is to go well beyond 10%. To date, we estimate that 20% of USA under gaming revenue flows through Roblox. We've done this through the power of our platform and the creativity and diversity of user-generated content.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

In this cohort, we validated the power of our ability to unify discovery, economy, tools, engine, safety, and cloud infra. While we did experience softness in our younger users' monetization this quarter, we believe our monetization system is fundamentally strong and will compound over time with additional levers, including subscription and advertising revenues. We've established, unlike really any other company at our scale, our commitment to setting the global standard for safe digital engagement and with younger users in particular. Long-term, we believe this is a tremendous benefit to have such strength among younger cohorts, and this will contribute, we believe, to fuel long-term growth. The 18-and-over market is 80% of the $200 billion global gaming market, we believe we're uniquely poised to expand play in this 18-and-over market in the same way we have for under 18.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Today in the U.S., our 18-and-up cohort represents nearly 1/3 of our now age-checked daily active users and our U.S. 18-34 cohort daily active users and hours are growing at approximately 40% year-on-year. Our 13-and-up cohorts around the world continue to show strong growth. In addition to our viral growth worldwide in under 18, we have the opportunity to power 18-and-up growth with increasing paid acquisition as we continue to improve product market fit. Besides safety, the majority of our product and technical investments supporting growth in 18-and-up also benefit younger audiences. We've recently launched three initiatives that will support our continued growth in the 18-and-up market segment. First, as we shared, we're removing self-imposed limits on the types of games we support on Roblox.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Second, we've redefined our app to align with physical play, including discovery. Third, we're reconnecting with our core promise that anyone can be a builder. First off, we want all types of gaming on Roblox. We're not that far away from having the technology in place to support the vast majority of games that people play online. On one end of this spectrum, we believe players are looking for multiplayer experiences that will ultimately mirror physical reality. Even since our start, we've had the goal of photorealism and unlimited multiplayer scale. With our announcement of Roblox Reality, we're well on our way to being the first company to bring photorealistic multiplayer to life and to the masses. We see a future where games really will become indistinguishable from movies for certain types of games. We can see this quality today in offline AI video tools.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

We believe we'll soon see this in real-time with Roblox Reality. Now, gaming is also simultaneously spontaneous and single player and 2D for many people. Up until today, we've been focused on 3D, and we've held back on initiatives to support high-performance 2D tooling and gameplay. Going forward, we're doubling down on our support for everything from 2D puzzle games to strategy. With Roblox Reality and a focus on 2D performance, we're expanding the bookends of what we believe will be possible on Roblox. This week, we've announced a unified vision of our app that includes bringing video discovery and creation front and center to all users. We've announced this week we're integrating Moments into our homepage for 16-and-up users, and we've begun testing for 16 up users in Canada, New Zealand, and Singapore.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

We're expanding the Moments feed to include short-form influencer video in addition to game captures, and we believe ultimately, Moments will be available for all with appropriate and safe educational content for younger players. Ultimately, we'll expand Moments with tiles that let users watch creators or view live gameplay in real-time, so you can see what your friends are playing. Our early tests show substantial gains in Moments user retention, and we're very optimistic about Moments. We'll ultimately be moving to full 3D games in the Moments tab, and this will become integrated with games created through Build. Together with Build, this means you can watch a game in action and then play it with one tap, creating really a unique path all the way from discovery to this new wave of content from Build.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

On the communication side, continuing our dialogue from last quarter, we're committed to leveraging our world-class, industry-leading safety infra to build the highest quality integrated voice, video, and text comms on the Roblox platform. We've already shipped global chat and quick words, and today, a significant portion of our users still do utilize off-platform communication tools. Our roadmap's to provide users the option to video chat with friends or stream with their Roblox avatar. Because all comms that originate within Roblox will accompany users as they move between games, they deliver a safer, richer, more immersive connection than any off-platform alternative. As a first step in Q3, we'll be deploying in-experience friend chat, which brings real-time text messaging directly into any Roblox game. Creating a game is much more complicated than writing code.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Games are built with code, images, graphics, audio tracks, 3D scenes, avatars, and of course, with enormous creativity. We believe we have a unique opportunity to accelerate game creation based on our integrated and vertical stack. Last week, we announced Build, an extension of our vision that everyone in the world can be a game builder, and we're leveraging our internally generative AI models to create a conversational interface, anyone who can imagine something can describe it and shape it with others, ultimately bring it to a playable experience to life in minutes. For the creators that are already building with us, we believe this will be about practical leverage, helping them build faster and to reach the right audience more effectively.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Build will be fully integrated with Roblox Studio, the AI powering Build will allow users to start an experience in Build and ultimately finish it in Roblox Studio. We're already live in New Zealand with Build, I just want to highlight, and we're seeing a large number of creations flowing through the system already. Literally, people fulfilling our vision of you make the game. Just as coding, it's not just the model, but we believe with Build, it's the integration of a harness, tools, and skills. Ultimately, our vision is many models unified in one harness using our cloud back-end and infra to come full circle. The other cool thing about Build is it really integrates with what we said about removing the bookends.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Many people who are using Build will want to build 2D experiences or 3D, Build will leverage this with our back-end to support everything in between. Given our discovery focus on long-term retention, we're comfortable that we're in a position to appropriately surface the high-quality creations with Build, even as the quality of creation increases. We're really navigating a period of normalization, we believe, following a year of massive growth. We have tremendous scale and engagement, which presents us with a unique opportunity to amplify our long-term potential. To capitalize on this momentum, we're doubling down on our vision that the world needs more play, we're bringing to life really the original vision of our company, which is You Make the Game, by expanding our global audience, broadening our content offering, and deepening engagement for our users and creators.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

I've never been more excited about our mission and more excited and confident in the road ahead. With that, we'll pass back to the operator for questions.

Operator

We will now begin the question and answer session. To ask a question, press star, then the number one on your telephone keypad. We ask that you limit your initial question to one. Our first question will come from the line of Matthew Cost with Morgan Stanley. Please go ahead.

Matthew Cost
Matthew Cost
Analyst at Morgan Stanley

Great. Thanks very much taking the questions. I guess you've done a really helpful job on this call, laying out what the long-term vision of what you're trying to build with the algorithm changes and the Kids and Select accounts. You've done a great job of explaining what that's meant to get to over the long term. I guess between here and there, what are you watching and what should investors be watching to help determine when the engagement headwinds from those changes have peaked? Connected to that, when we think about the expectation of user growth sequentially in the Q3, is that just a function of seasonality, or are there any improvements in the trajectory as you've exited the Q2? Thank you.

Naveen Chopra
CFO at Roblox

I have a list. David, do you have a list? Do you want me to go first or you want to go first?

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

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

Naveen Chopra
CFO at Roblox

Yeah. Hey, Matthew, great question. I think a couple things to watch. In our U18 segment, we've laid out on this call really where we're going, and that includes, we believe, finally we'll be fulfilling that original vision of You Make the Game. Not every user can figure out how to use Studio or Make a Game. What we see already in New Zealand is more people per day on Build than on Studio. We do think ultimately, AI creation of gaming is going to be something that sits side by side, playing games. I think watch for frequency in under 18. We also expect to be fairly generous in the amount of AI or tokens in the Build process.

Naveen Chopra
CFO at Roblox

For those users that are using Build all day long, we will, within our Roblox Plus subscription, add the ability to increase what will be called token somewhere else. We'll have our own name for it. Watch our subscription for under 18 as well. I would say also as we roll out continued comms platform, watch for that. Over 18, we're laser-focused on a couple cohorts in that and the growth rate in those cohorts, and we're laser-focused on the type of content that's being created by our creator ecosystem that we believe will be more and more retentive in those cohorts. I would watch the growth rates in over 18. I shared a bit of what they are today, because those point to 80% of the market that we believe we can do the same thing in as we've done under 18.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

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

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Those are probably the two big ones that I would highlight with respect to DAU trends.

Operator

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

Ken Gawrelski
Ken Gawrelski
Analyst at Wells Fargo

Thank you. Two, if I may, please. Could you maybe first touch upon the updates to the Discovery engine? You did a good job of explaining that in the letter, but maybe if you could talk about when you expect to see some of these longer-term retention benefits filtering into both engagement gains, and also potentially monetization gains. Just if you could walk us through maybe the timeline and your expectations there.

Ken Gawrelski
Ken Gawrelski
Analyst at Wells Fargo

Second, if I may, please. Naveen, could you just talk about as we're going through this transition and the push for over 18 and new content, could you talk to us about any changes you might expect in the cost structure? How either from either a DevEx standpoint, from a tech standpoint, a platform standpoint, how might the financial profile of the business look in success 12-24 months out relative to the prior 12-18 months? Thank you.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

I'll start with the Discovery algorithms. What I touched on, as we continue to refine Discovery, what any Discovery algorithm is really trying to do is connect users with experiences that both drives long-term enterprise value and simultaneously gives signals to creators of what types of experiences are rewarded with Discovery. It's a complicated process. It involves both feedback to creators as well as feedback to users. Watching social, we've implemented and improved our algorithms over the last few months, there's been resounding support in the feeling that we're moving more and more to evergreen-type games that keep players around for a long-term. Essentially the exact opposite of what might be called, not that we're saying we had it, but more clickbaity or kind of cash grabby type games. We want to be as far in the evergreen segment as we can.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

We made the decision, as we started going down this next-gen, to go longer into the timeframe to measure signals longer. We made the decision to use that feedback loop to update the algorithm, even as we're running additional tests. We've really churned our Discovery system from something that's baked in to something that, in a way, is constantly self-improving and self-estimating our best guess at what user-game pairs will drive the best long-term retention. We're balancing that more and more with what we think is the optimal mix of long-term retention and long-term monetization. In our experiments, as Naveen said, we can see shorter-term reductions in monetization, but then crossover points and longer-term improvements. We're not going to share exactly what the crossover points is, but this is the reason we implemented and have gone with this. It's directly measured retention. It's less projecting.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

It's more direct measure of both retention and monetization. One other thing, as we introduce Build and we expect the volume of creations to grow much higher on Roblox, we believe this algorithm is very resilient to both finding great new Build games that will be playable by all, and simultaneously not flooding users with games that might have an AI kind of name to them that aren't as long-term retentive.

Naveen Chopra
CFO at Roblox

All right. Ken, with respect to your question on the cost structure, there's a couple important things to highlight here. First, our view of the long-term margin potential of the business really has not changed, meaning the kinds of things that are going to drive margin expansion over time are still in place. Obviously, continued bookings growth generates fixed cost leverage. We continue to expect to see mix to lower cost platforms that will help COGS, and DevEx increases are something that we do intend to continue to pursue, but those ultimately are a function of us realizing fixed cost leverage in other parts of the business. That's point one. Point two, in call it the near to medium term, the investments that we're making in a lot of AI-powered product enhancements, I do expect to result in some elevated levels of infrastructure expense.

Naveen Chopra
CFO at Roblox

It's important to realize that unlike our infra expense historically, this is more of a fixed cost, because historically, infrastructure investments have been a function of hours and users on our platform. These infrastructure costs are largely being driven by model training, we're moving aggressively in that direction. Over time, we expect, given the more fixed cost nature of that, as bookings grow, we'll start to see leverage on those infrastructure investments as well. As you saw in the Q3 guidance, there is going to be some pressure in the short to medium term as a result of the incremental cloud GPU capacity that we need there.

Operator

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

Eric Sheridan
Eric Sheridan
Analyst at Goldman Sachs

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

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

I really think the broader definition is a bigger thing than Roblox, and it is our vision that the world needs more play. Play is something that people do with each other. It's something that involves not just playing, but creating. It involves being with others, communicating with others, being yourself and watching them. Really, as we've redesigned our app and brought both Build as well as Moments to the homepage, it's really part of that vision of mirroring the physical world with what's happening in our digital world of supporting play.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

We think just like in the real world where play involves sometimes creating the game, I'm optimistic that we're going to see a volume of creation with Build, unlike any volume we've ever seen with Roblox Studio, while at the same time, pro devs and devs making extremely complex properties will utilize all of the capabilities of Build as they move to large teams in Studio to build much more complex type creations. I do think what is gaming is changing. I think we're going to enter an era just like 10 years ago, where most of us didn't know how to edit video, and now all young people, essentially, many of them know how to edit video on their phone.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

The same thing I think is going to happen in gaming, where really with AI acceleration, everything from 2D puzzle games to complex 3D multiplayer games are going to be created on mobile, enhanced in Roblox Studio. That's going to really change the whole landscape, I believe, of what gaming is. I do think the youth of today are changing. I think play is universal, and I believe we're moving towards that original vision of really everyone on our platform is a creator and a builder.

Operator

Our next question will come from the line of Chris Scholl with UBS. Please go ahead.

Chris Scholl
Chris Scholl
Analyst at UBS

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

Naveen Chopra
CFO at Roblox

Yeah, sure. I think we're pretty clear with respect to our capital allocation strategy, meaning first and foremost for us is making sure that we have the ability to aggressively invest in organic growth. That largely takes the form of R&D, people, tokens, infrastructure, things of that nature. We try to be very diligent and very efficient with all of those investments, but we also recognize we live in a very rapidly changing world right now, and we're going to keep a lot of dry powder to make sure that we can be highly nimble with respect to organic investment. That being said, when we look at our balance sheet and our free cash flow trends, we have a lot of firepower to do both, what I just said with respect to organic investment, but also to support a buyback and potentially M&A.

Naveen Chopra
CFO at Roblox

Our M&A historically has been largely focused on acquiring technical talent, and we have ample ability to continue to do that, but also potentially bigger things in the future to the extent there's strategic or industrial logic to it. In terms of stock price performance affecting how we think about the buyback, two comments on that. One, the way we have structured our buyback, which is largely to offset dilution from employee equity grants, does result in us effectively buying more stock when the stock price goes down and buying less when the stock price goes up. There is some sort of natural adjustment built into the mechanism. We do have the ability to accelerate that or supplement it, and those are obviously things that we'll continue to evaluate.

Operator

Our next question will come from the line of Omar Dessouky with Bank of America. Please go ahead.

Omar Dessouky
Omar Dessouky
Analyst at Bank of America

Hi, thank you. I think you guys explained clearly why you gave your Q3 guide, but I was hoping that you could give us perhaps some guardrails around the Q4 and the full year, given that you're not guiding the full year anymore. Number one, is 2026 still a growth year? Would you be comfortable telling investors that 2026 bookings will be higher than 2025 bookings in total? When we think about those factors that caused you to give your Q3 guide, how are those factors going to improve or trend in the Q4? What's getting better in the Q4 versus the Q3? Just to kind of help us put some guardrails around what the Q4 could look like.

Naveen Chopra
CFO at Roblox

Yeah, I'll take that, Omar. As I said, we're not going to provide guidance for the Q4 right now simply because of all of the moving pieces that I think we articulated both in our letter and some of our comments. We feel good about where things are trending in the long term. We are navigating, as Dave said, both normalization from last year and also a number of platform changes across discovery, safety, and now launching some very meaningful new products with things like Build and Moments. The reality is, it's very early days for many of those new initiatives. There's no model that we can look at that's going to say here's exactly what they're going to do over the next three to six months. We want to make sure that we're moving as quickly as we can on all of those initiatives.

Naveen Chopra
CFO at Roblox

You have to assume that the things we do in Q3 and Q4 are going to be consistent with what we said we want to accomplish over the long term, but we can't give you any more specific guidance than what I've shared.

Operator

Our next question will come from the line of Clark Lampen with BTIG. Please go ahead.

Clark Lampen
Clark Lampen
Analyst at BTIG

Thanks very much. Appreciate you guys taking the question. Naveen, sort of the first of two questions, if I may, would be in the shareholder letter you mentioned, you were comfortable based on internal testing that longer retention would ultimately overcome a reduction in hourly monetization. Could you elaborate a little bit more on that or maybe what you had seen when you had run those sort of comparisons? Second one is very quick, just on Morpheus. Could you help us think about either the magnitude of financial commitment or potentially help size the IPS headwind that we might see this year? Thanks very much.

Naveen Chopra
CFO at Roblox

Yeah. On the first one, I think Dave talked about this a little bit too, maybe just to put a little bit of a finer point on it. We've been running a lot of experiments, continuing to evolve these algorithms. What we have seen, when we sort of A/B test them relative to people on, call it, older discovery algorithm, is that very quickly there is a change in user retention, which ultimately, that's a compounding effect for our business because ultimately more users is what drives the Roblox flywheel. Also shows up relatively quickly in incremental hours of engagement. However, there is a pretty immediate hit to dollars per hour. That's sort of the monetization metric that we look at.

Naveen Chopra
CFO at Roblox

We do believe that based on the curves that we've seen with, call it, a few weeks of data for each of these experiments, that those lines cross, meaning the benefit of the incremental retention will more than outweigh the short-term hit to bookings. We're not going to put a specific timeline on that right now, in part because we're continuing to evolve those algorithms. Our focus right now is actually on finding ways to improve the algorithms such that we can reduce the near-term bookings impact while retaining the retention benefit. There are some promising irons in the fire on that, too early to say exactly what the impact will be.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Yeah.

Naveen Chopra
CFO at Roblox

Go ahead, Dave.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Okay. No, I was just going to add, the longer out we look at signals and directly measure them, the longer we pick up not just early revenue, but longer revenue in conjunction with that retention. We are trying to optimize a blend of long-term retention and long-term monetization that's directly measured, as opposed to overly extrapolating from short-term monetization signals that may be chatty and putter out.

Naveen Chopra
CFO at Roblox

Clark, with respect to the second part of your question on the magnitude of the infra investments and sort of the headwind of those, great. I think you asked the question in the context of Morpheus. Morpheus is one small part of many different AI initiatives that we have going on. I'm going to answer the question sort of bigger picture. Probably the simplest way to think about it is if you look at our margin guidance for Q3, and you look at the margin compression relative to the year-ago period, I would say that about half of that is just fixed cost deleveraging coming off the back of the bookings reduction. The other half is related to these investments in AI.

Naveen Chopra
CFO at Roblox

Those are the things that power new features like Build and Moments, a lot of the improvements we're making on safety, as well as training models for things like Roblox Reality. All really important, exciting stuff that requires incremental investment.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

I want to highlight with Morpheus the significance of what we're working towards. Our goal is to provide photorealistic multiplayer gaming, which does not exist in the world today. On one end of the spectrum, we're starting to have offline video models that start to approach a 4K movie. On the other end, 3D gaming technology is getting better and better and better, but is not quite photorealistic. We believe a hybrid approach, which is both 3D synchronization in the cloud with end user super upsampling to get to photorealistic, is the ultimate way to do this. The cost of infra here will initially be offset by subscription. Games will run both in regular Roblox mode as well as in super upsampled Morpheus- Video photo reality mode, we will initially expect to charge subscription to access that.

Operator

Our next question will come from the line of Clay Griffin with MoffettNathanson. Please go ahead.

Clay Griffin
Clay Griffin
Analyst at MoffettNathanson

Great. Good afternoon. Dave, I'm curious to get your thoughts on how you see the 2D content that you're enabling with some of the announcements that you've made today. Typically, we'd like to think of mobile as more of a single-player experience in many cases. Do you envision 2D mobile content being sort of an acquisition funnel for players that are outside of your platform today? Or do you think that there's demand for that type of content on the platform today? How do you think about what might make 2D content on Roblox differentiated from the typical kind of 2D mobile experience today?

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

I think when we take a step back and go to that original vision of you make the game, there's a really good conjunction, we believe, between what we're doing with Build and with what we say about removing the bookends of the type of content we want on our platform. When we start putting Build in front of people, they don't constrain themselves to saying, "I want to build a 3D multiplayer obby course," or, "I want to build a puzzle game where you do this," or, "I want to build a multiplayer obstacle course game." There's really a great intersection in supporting all that people want to build on Build. The other thing is, I think many people don't differentiate necessarily between a 2D single-player game, a 2D multiplayer game, a two and a half D orthographic game, a 3D multiplayer game.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

They just think of play. As we get into more and more older cohorts, some of those cohorts have an ample appetite for 2D. We believe huge advantages in any experience that's built on Roblox, runs in multiple languages, runs around the world, is socially enabled, is backed by our economy, is backed by our infra, and can intermingle throughout them. We see this really as just approaching having a wide range of gaming on the platform, and ultimately it works with Build in that we're not going to limit what people can build when they go and imagine creating a game and showing it to their friends.

Operator

Our next question comes from the line of Andrew Marok with Raymond James. Please go ahead.

Andrew Marok
Andrew Marok
Analyst at Raymond James

Thanks for taking my questions. Maybe one, can you please talk a bit about the differences in monetization patterns between under 13 players and other cohorts that may have driven an outsized impact this quarter? Was it specifically related to the viral hits from last year, or is it a general rule that these younger users are maybe more volatile in their monetization patterns?

Naveen Chopra
CFO at Roblox

Yeah, I'll take that. I think it's more the former, meaning if you just look at sort of the percentage of hours consumed on the platform last year that was coming from these very large and high monetizing viral hits. It was very concentrated, and those games did appeal in particular to younger users. So when we have seen this mix shift from those games getting replaced, if I call it games with more normal levels of monetization, that shows up most significantly with these younger users. I don't think there is anything sort of structurally with respect to changes in younger user behavior. It's really just the games that are popular at this point in time don't have that sort of very elevated level of monetization that we saw last year.

Operator

Our final question will come from the line of Aaron Lee with Macquarie. Please go ahead.

Aaron Lee
Aaron Lee
Analyst at Macquarie

Hey, thanks for taking the question. Appreciate it. Maybe just to touch on Incubator and the 18 plus initiatives, it seems like that's progressing nicely. Can you just talk about what you've learned through this process so far and maybe how that informs how this program could evolve going forward or any other initiatives in the pipeline to really drive this business forward?

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Yeah, I'll comment on it. We have a lot of content coming, not just from Incubators, but also studio partners and our existing community. We do see ultimately as a UGC platform, the power of that, but we do also see the ability, almost from a sales engineering or an expansion of how we see DevRel to be very intimate with the top creators on our platform and to be very intimate with them as we help guide them to what performs well on our platform. We really have a focus on a lot of the tech we've recently introduced with our Incubators. We've introduced the ability for much higher performance avatars, for much higher performance worlds that run very well on low-end Android as well as on high-end PC. We've introduced a compositing technology called SLIM that allows very complicated avatars to run at high performance on phones.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

All of this, working with these partners, we believe is a huge technical opportunity for them to build games for us. Of course, they're also working on our DevEx premium of 50% for games consumed over 18. Really it's not just the Incubator, it's many of our corporate studios we're working with as well as our existing developer community, and we're seeing great quality coming out of them.

Operator

That concludes the question and answer session, and I'll hand the call back over to David Baszucki for closing comments.

David Baszucki
David Baszucki
Founder, President, and CEO at Roblox

Hey, once again, thank you for all the great questions. It really is an exciting time for us as we move towards fulfilling that original vision we had when we started the company of You Make the Game. Really, for everyone around within Roblox helping to support more play everywhere around the world. Thank you again for your questions and attention.

Operator

This concludes today's call. Thank you for joining. You may now disconnect.

Executives
    • Jaime Morris
      Jaime Morris
      Head of Investor Relations
    • David Baszucki
      David Baszucki
      Founder, President, and CEO
Analysts
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