Roblox Files to Go Public Amid Surge in Videogame Spending

The video game platform rides a pandemic boost to its public offering.
(Miguel Lagoa)
(Miguel Lagoa)
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“Videogame company Roblox Corp. has filed to go public at a time when the pandemic has supercharged demand for online gaming,” WSJ writes.

For those who don’t know, Roblox isn’t the typical kind of game publisher or developer. It operates a platform with millions of user-generated games created with the tools the company provides.

  • The company generates revenue through microtransactions for in-game perks using its virtual currency, Robux.

The Good News: The 16-year old company has seen massive sales growth.

  • Revenue rose 56% to $88.2 million last year and increased even more during the pandemic.
  • Sales in the first nine months of 2020 surged 68% to $588.7 million, and bookings in that period roared upward 171% year-over-year.
  • Roblox said it has an average of 36.2 million people globally who use its platform daily to connect with friends.

The Bad News: Roblox, like many highly-anticipated tech IPOs, isn’t profitable. Last year, it lost $86 million and $203.2 million through the first nine months of 2020.

  • The company says it’s profitable on a cash-flow basis, though, and was valued at $4 billion earlier this year.

The Upshot: Global consumer spending on videogames is expected to rise by 20% to $175 billion this year. Pitchbook reports the industry has already seen $10.3 billion in mergers, acquisitions and buyouts, plus another $1.7 billion of venture investments this year with two months to go.

  • 2019 Numbers: $7.8 billion in mergers, acquisitions and buyouts, and another $1.7 billion in venture capital.

The Takeaway: Roblox benefitted from a pandemic boost to video games and crossed $2 billion in cumulative gross sales (spent on the platform) during October. But whether these activity levels can be sustained and how effectively the company can protect its largely under-13 user-base present business risks.

  • Final Word: Roblow has yet to decide on its IPO price, how many shares it will offer and when it will start trading. It will be listed under the ticker RBLX.

Justin Oh:

Roblox seems to be inflecting quite a bit, growing daily active users (DAUs) by 81% and revenues by 68% year-to-date in 2020 versus last year. Currently the company only carries a 38% “gross margin” after it pays its game developers. The company is also a long way from profitability because it spends 55% of revenues on infrastructure and R&D. 

I really like the fact that it’s a platform where users generate the games, as opposed to a developer itself. It could conceptually be to mobile games what YouTube is for video creators, Substack is for newsletter writers, and Patreon (and Onlyfans) is for “creators.” 

My initial concern for the business is what happens to playing time, user spend, and potential gamers once the pandemic is over? I assume social media will be stickier because of its shorter time commitments, but games that require long stretches of time may see usage scale back in a post-pandemic world. 

Honestly if I were on Apple’s executive team, I would be pitching an acquisition of Roblox. $AAPL could try to do with Roblox what Microsoft did with Minecraft and gain a much needed growth avenue. Furthermore, imagine an Apple game building platform that publishes through the iOS App Store…

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