Roblox's Unorthodox, yet Incredible Public Debut
Issue 5 (16/03/2021) - Another mesmerizing IPO for another mesmerizing Tech company. Roblox, what have they done right? Where is their future? What are they all about?
Welcome to Issue 5! It has been a hot minute since I last posted so I aim to provide more content and some interesting articles in the near future. I hope that you all enjoy this one!
The public debuts for large tech companies continues its trend of breaking barriers with its most recent addition: Roblox. Denoted as an online game platform that also encourages game creation has picked up great recognition, user retention and growth during the pandemic and ensured that they tracked this positive energy through to their public debut. Now, they strayed away from a traditional public debut, as they opted to venture into a direct listing instead of the usual IPO. Regardless, as of March 12th, they were trading at 69.70 USD, putting the company market cap at just under 40 Billion dollars. They peaked 41 Billion with the highest share price of 77.78 the day they went public. These numbers set Roblox above its competitors such as Epic Games and other engines. Many state that it commits its success to the endless number of developers who utilize its engine to create their own games for many users to play.
What does Roblox Even Do… REALLY?
So, to many reading this, you may be aware of what Roblox is, generally. But do you really know how their operations work? Before I wrote this, my understanding was very hazy as well so do not worry. Roblox, at a high level is an online platform enabling users to play various games created by many developers and other users. It allows users to play games created by other users, where these creators are eligible to gain monetary rewards based on the level of success their respective game achieves. Many may speculate how often these games are really played and how feasible being a game creator in Roblox is. However, Covid-19 has propelled the company’s monthly active user (MAU) rate significantly. More than 1250 developers earned at least $10,000 with 300 earning over $100,000. All in all, according to CNBC, Roblox paid its developers a whopping $328.7 million in 2020, which is almost 200% as much as what was paid to developers in 2019. The company not only provides a robust game platform for many users, it also has established many sources of income for developers. The constant innovation that comes from these user developers leads to users continuing to spend hours playing the various games. This robust cycle has aided the company tremendously during the Covid-19 Pandemic.
Uncontrollable Growth?
The pandemic led to the daily active users increase by 85% in 2020, to roughly 33 million people. The total hours spent on all platforms of Roblox doubled to almost 31 billion hours over the course of the pandemic. Of course with increased users, comes a higher valuation, which we all have seen in the news. However, all of this success, recognition, and traction has put the company in relatively hot waters with regards to security, privacy and safety. This has been the second largest expense after developer fees for the company. Going forward, as the company continues to grow, this will become a growing concern. Many have targeted the company as a source of scam attacks, malware hacks, as well as phishing.
With such growth, however, the total roblox net loss has also skyrocketed at 71.0 Million in 2019 and 253.3 Million in 2020. The total revenue earnings for the company was 923.9 million in 2020, more than double that of in 2019. You know how it is with tech startups, the valuation is in its future!
IP NO!
So… I mentioned that Roblox did not go the typical route of an IPO, but rather opted in for a direct listing instead. An initial public offering, or IPO, as its more commonly known, is where new shares are created and sold to the public. On the contrary, a direct listing does not create new shares and only uses already created and outstanding shares where no underwriters are involved at any portion of the process. Both are methods for companies to establish and raise more capital and both lead to a public debut for the company.
A Content Creation Platform???
To put a bit more numbers into the company to detail a bigger picture, the user generated content is developed by 8 million people. The user demographic can be broken down into 25% being under 9, and 42% being between 9-16. A mere 14% of users are above the age of 25, which has really segmented Roblox as a predominantly kids platform. The future of Roblox seems incredibly bright, however, they should really diversify their customer segment. As denoted from the information above, the target market is mainly children. Their user retention rate as they grow older significantly diminishes, which could prove to be a glass ceiling for the company later down the line. Beyond this, the Roblox reports the following:
"The increased use of interactive entertainment offerings like ours by consumers, including younger consumers, may prompt calls for more stringent consumer protection laws and regulations that may impose additional burdens on companies such as ours,"
Therefore, diversifying their customer base should be quite high on their priority list. The company, like many other tech companies remains unprofitable and there will come a point where the company will stop exponentially growing on the metric of future growth. They boast a current loss of over 320 million cumulatively for 2019 and 2020, with more than 250 of that coming from 2020. They state that they will begin to curb this issue through increased sales from diversified channels of advertising. But beyond this, they must also begin to convert their free customers to more paid customers.
The company has grown a lot recently and will definitely continue to grow. Listing on the New York Stock Exchange (NYSE) proves to be a large step in the right direction, given the market timeline and how many other companies have been successful with their public offerings. Roblox is another exciting company to follow, not just for investors, but for individuals looking into understanding the disruptive market of gaming. The gaming industry remains among the fastest growing sectors, partially fuelled by the pandemic, but also due to the growing attempts at innovating and disrupting the market.
Please do not make any investment decisions based on this Article. All analysis remain strictly my opinions. Additionally, all images of the company belong to Roblox.
Very Insightful!