In the year 2020, Roblox was planned to go public. Then the stock market debuts of Airbnb and Doordash led it to reconsider its strategy. Roblox, like Airbnb and Doordash, may have missed out on a lot of money if it had gone ahead with its original IPO plan. And, given that the purpose of an IPO is to raise cash rather than to assist institutional investors make a quick gain, there may be a better way to go about it.
Using a Direct Listing to go Public
Roblox raised $520 million from investors in a private investment round after deferring the IPO. Roblox was valued at $29.5 billion, a sevenfold increase from a year earlier.
Roblox then revealed its intention to go public through a direct listing. This strategy might save Roblox even more money on underwriters’ fees while still allowing the firm to go public. Roblox was ultimately listed on the stock exchange on March 10th, with the ticker RBLX. But there are two things you should know before jumping into the stock market.
Roblox’s Money-Making Machine
Roblox was started in 2004 by CEO David Baszucki and Erik Cassel with the goal of bringing people together through immersive virtual worlds. Roblox allows the user to create games as well as play games developed by others. Roblox had an user base from several hundred people at first. Roblox now has over 36 million daily users that play and engage with the game. Roblox’s business model is divided into two sections. The gaming platform is the initial component, which allows users (developers and players) to create and play games. 7 million developers are creating “experiences” on Roblox, which include games, virtual products, and environments. Even youngsters may develop thrilling games using Lego-like blocks instead of code thanks to Roblox’s capabilities.
Roblox can easily attract new users and maintain existing ones with its 18 million experiences to pick from. Developers are driven to create more engaging content as more players join Roblox’s platform (and spend money on those games), attracting even more gamers. However, that is only half of the story. When Roblox users join, they frequently invite their friends to play with them. Those friends will then invite their friends, and so on. Roblox’s network effect is sustained by this virtuous circle of countless experiences to pick from. Does this ring a bell? That is how Facebook came to be what it is now.
Roblox’s customers spend a lot of time on the site because these games aren’t “just” games; they’re Minecraft-style environments with a lot to discover. Even users who aren’t players stick around to socialize with one another. Roblox, like Facebook, is a social media platform. Roblox has able to carve out an ecosystem with its own rules, economy, and currency, thanks to the sheer scale of its community. The majority of Roblox games do not require payment. They can, however, buy and spend Robux, the game’s in-game currency, to customize their avatars with accessories, clothing, and special abilities.
Roblox takes a 30% cut of user expenditures to generate money. The remainder is distributed to platform developers. When developers convert Robux into actual money, it earns a commission. So far, everything has gone smoothly for Roblox. In 2019, revenue increased by 56% to $488 million. Revenue increased even faster in the first nine months of 2020, climbing 68 % to $589 million.
Roblox is just Getting Started
COVID-19, like many other video game firms, served as a turbocharger for Roblox. In 2020, Roblox’s daily active users increased by 97 percent year over year, the greatest rate of growth in the company’s history. Many Roblox users are still new, but with time, they will become more engaged. They will naturally spend more Robux as they discover new games to play and immerse themselves in Roblox’s diverse communities. Roblox is also looking to expand its user base in international areas. It has invested on automated translation technologies and a regional compliance system that assist developers in reaching a larger global audience. It also collaborates with Tencent Holdings to expand its presence in China, the world’s largest video game market.
Roblox’s potential expands its target market much beyond gaming. It aspires to become a “human co-experience” platform where people can gather to play, study, and work together. Roblox, for instance, might offer virtual classes in the future, as well as graduation ceremonies, corporate events, and concerts. Roblox will also become more appealing as a marketing tool as its social network increases. Branded content has already been introduced on the platform by major businesses such as Netflix and Marvel.
All of these possibilities indicate potential growth engines for Roblox, as well as a bright future. While it’s unlikely that all of these projects will succeed, some will, and that will be enough to keep Roblox developing at a rapid pace for many years to come.
It will be a volatile ride ahead
The year 2020 was the year of the soaring tech stock. After increasing 240 % and 180 % last year, popular names like Square and MercadoLibre are trading at exorbitant valuations. Newer digital IPOs, such as Unity Software and Airbnb, have more than doubled in value after their initial public offering. Roblox is expected to receive a warm greeting, as well as a high IPO valuation. Given Roblox’s track record of rapid growth — and the ability to continue doing so for many more years — this is understandable.
Investors should not overpay for a stock, regardless of how promising its prospects appear to be. Roblox is also losing a lot of money, and this could continue for years.
It’s not uncommon for high-growth businesses to invest extensively in order to achieve market-beating results. However, any stock that has a loss-making business and high values is very vulnerable to a market correction. Roblox isn’t in for a smooth ride, given how fragile tech stocks are these days. Roblox may appear to be all about having fun. However, its stock is not for the faint of heart.
Roblox was expected to go public during the year 2020. The stock market debuts of Airbnb and Doordash, however, caused it to rethink its strategy. On March 10th, Roblox was finally listed on the stock exchange under the ticker RBLX. However, there are two things you should be aware of before entering the stock market.
Roblox is likewise seeking to grow its user base outside of the United States. It has made investments in automatic translation technology as well as a regional compliance system to help developers reach a wider global audience.