Roblox – a sleeping giant about to awaken

roblox ipo

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Ah, Roblox. If you are a developer, under-16 or if you have kids, then you have probably heard about it. Just in case you have not: Roblox is a gaming platform that allows players to create their own games and play other users’ games. In October

The platform was launched officially in 2004, following two years of development by David Baszucki and Erik Cassel. Originally users could play minigames (think something along the lines of “pool” on your phone). The platform went through a number of iterations with its currencies, introducing and then removing “tickets”. Its primary currency is called Robux (purchasable with real life currencies).

One of its main features has also become a filtered chat, as its main demographic has always been kids (a lot of times under the age of 13).

Some of the most popular games in Roblox include titles, such as “Adopt me!” and “Jailbreak”. (Not creepy at all).

As of July 2020, (and as reported by Roblox themselves) the platform has

  • 150 million active users.
  • Developers publishing games to Roblox are set to earn $250mln in 2020.
  • In Spring 2020, Roblox has also allowed to monetise games based on engagement (Zuckerberg is in cold sweat).
  • As of October 1st it is valued at $8 billion (with Andreessen Horowitz leading the round).

On October 12th 2020, Roblox filed papers with SEC to go public on the U.S. stock market.

So is the above valuation justified, and is this another giant in the making?

Engagement

New content created by over 2 million developers on a daily basis keeps the users engaged and makes sure that the platform continues evolving. This addresses the problem that regular gaming studios face – i.e. how to keep users interested in new releases and/or old games. This is not an issue just for videogames, but also for other tech giants, such as Facebook for example. And so user-generated content is something all of these companies strive towards, as it provides virtually limitless possibilities. Roblox seem to have the ultimate solution here, after over 14 years of development.

User engagement – CHECK.

Competition

This is perhaps one of the strongest points. While there are other gaming platforms, such as Valve’s steam and Ubisoft’s Uplay, none of these focus on integrating games into one big gaming experience like Roblox. Instead, they serve as communication platforms and online stores, lacking that one common connection that Roblox has.

Some might see Minecraft as Roblox’s closest competitor, with 120 million active users as of May 2020. Indeed with Microsoft’s backing, this poses a serious threat to Roblox, however there is a key distinction – developers can profit directly from their games on Roblox, unlike in Minecraft (it is possible to sell in-game items in the latter too, but the modes are usually free for all to play).

Lack of competition – CHECK.

Finances

Is it profitable? Good question. According to Sensor Tower users have spent on average $90million per month on Roblox, however the majority of this money goes out to developers who publish games through the platform. Roblox makes money from: memberships (required to have a Roblox avatar and to buy accessories and items on the platform) and selling its own currency (Robux), that can be spent on the platform.

Funnily enough, despite the above figures, and the company’s CFO, Michael Guthrie reporting that Roblox is cash-flow positive, we don’t know exactly how much the company actually makes from all that money flowing in. At the same time – it doesn’t matter as much these days, does it? (Khm, Tesla, Uber). Grow your userbase, ensure the churn rate is minimal and you have yourself a unicorn that only increases in size – that is according to investors these days anyway.

Considering the above, an $8 billion valuation does not look so out of place after all…

My humble prediction: Watch this space – with Roblox users “growing up” and games evolving, this will be a GIANT of a player in the next 5-10 years to come.

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