Investor Sues Roblox for 'False Statements' on Its First Stab at Revenue Guidance

Information provided to investors by Roblox and four executives in November included “false” statements related to revenue guidance for Q1 2024 and the full fiscal year, alleged a Securities Exchange Act class action (docket 3:24-cv-03484) Monday in U.S. District Court for Northern California in San Francisco. The individual defendants are CEO David Baszucki, Chief Financial Officer Michael Guthrie, Chief Product Officer Manuel Bronstein and Chief Partnerships Officer Christina Wootton.

Eugene Li filed the suit on behalf of investors who bought or otherwise acquired Roblox stock between Nov. 15 and May 8. The suit is based on a review and analysis of relevant findings made by Roblox with the SEC, plus public documents, conference calls, news releases and securities analysts reports and advisories, said the complaint. Li believes further “substantial evidentiary support will exist for the allegations” after a reasonable opportunity for discovery. Most of the facts supporting the allegations “are known only to the defendants or are exclusively within their control,” the complaint said.

The November earnings call marked the first time Roblox offered earnings and revenue guidance to investors since the company went public in 2021, said the complaint. The defendants told investors on the call they expected $4.14 billion-$4.28 billion of bookings in FY ’24, reflecting 25%-27% annual growth and $3.3 billion-$3.4 billion annual revenue, it said.

The defendants’ “bullish” revenue guidance was based on the online gaming platform company’s “innovative economic incentives for online content creators; new digital purchasable items; expansion to new platforms such as PlayStation; and expanded advertising revenue,” said the complaint. The company reiterated its projections on a Feb. 7 earnings call “while also reiterating its strength in its new technology and digital economy,” it said.

On May 8, investors found out the previous statements were false when Roblox released its Q1 financial report, said the complaint. Executives disclosed on that call 19% bookings growth in Q1 and dialed back previously announced bookings guidance to $4 billion for the full year, blaming its “digital economy, new purchasable items, and platform expansion for the decline,” said the complaint.

Investors and analysts reacted immediately to the statements, with the price of Roblox shares declining “dramatically,” said the complaint. Roblox shares closed at $39.03 per share on May 8, and dropped over 22% the next day, closing at $30.42, it said.

On the February call, the defendants created the “false impression” that they possessed reliable information about the company’s projected revenue outlook and anticipated bookings growth, due to expansions in its available platforms, changes in its digital technology, such as avatars, its “shared economy with content creators, and advertising revenue,” said the complaint. In truth, it knew the bookings and revenue sources “were tenuous at best,” alleged the complaint.

In fact, the complaint said, Roblox faced difficulty converting digital active users (DAU) into bookings “and eventually blamed the very technology and platform growth it lauded as revolutionary and revenue-generating for this bookings problem.” The defendants “misled investors by providing the public with a materially flawed outlook for the relationship between DAU, bookings, and technology it lauded” during its investor day and earnings calls, it said.

Li seeks for himself and the class damages, pre- and post-judgment interest, reasonable attorneys’ fees and other costs. Roblox didn’t comment Tuesday.