Roblox IPO

When was the Roblox IPO?

Roblox completed a direct listing on the New York Stock Exchange on March 10, 2021, when its shares started publicly trading under the ticker ‘RBLX’.

Roblox did not raise any new funds for growth as companies do not issue new shares under a direct listing like a company does during a traditional initial public offering. A direct listing is when a company only lists existing stock on an exchange to allow current shareholders to sell their shares and avoid having to hire investment banks to drum-up interest in new shares. Other big stocks that have gone public using a direct listing include Spotify and Palantir.

Roblox IPO valuation: How much are Roblox shares worth?

The New York Stock Exchange set a reference price of $45 for Roblox shares ahead of its listing. Importantly, this was not how much initial shares sold for but the benchmark to evaluate how it has performed once it listed. The actual price was determined by the buy and sell orders from brokers ahead of the listing.

Notably, the reference price gave Roblox a valuation of around $30 billion – in line with valuation achieved when it raised $520 million in new funding back in January. Roblox was valued at just $4 billion in 2020.

Roblox shares ended their first day of trading priced at $69.40, having hit a low of $61.09 and a high of $74.67. That meant Roblox finished its first day as a public company with a market cap of around $38.3 billion.

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What is Roblox?

Roblox was founded in 2004 by David Baszucki and Erik Cassel. Back in 1989, the pair developed a 2D simulated physics lab named Interactive Physics, which was used by students to simulate stuff like cars crashing or buildings collapsing, and this formed the basis for the creation of Roblox.

Roblox is software company that allows users to create and use 3D digital worlds. People can freely develop their own virtual worlds or explore ones developed by other people. All of this is powered by its own currency called Robux, which is used to buy access to certain worlds and items for the avatar used to navigate the virtual spaces.

‘Some refer to our category as the metaverse, a term often used to describe the concept of persistent, shared, 3D virtual spaces in a virtual universe. The idea of a metaverse has been written about by futurists and science fiction authors for over 30 years. With the advent of increasingly powerful consumer computing devices, cloud computing, and high bandwidth internet connections, the concept of the metaverse is materializing,’ Roblox explains in its prospectus.

Roblox had 32.6 million daily active users (DAUs) at the end of 2020, up from just 13.7 million at the end of 2019 and 12 million at the end of 2018. Notably, Roblox is particularly popular with younger users, with over half of all DAUs under the age of 12.  

Users spend around 2.6 hours every day on Roblox and explore around 20 experiences each month. All content is made by users rather than the company and there had been over 20 million experiences created by the end of 2020, 13 million of which had been explored by the wider community.

Roblox works across mobile, desktop, consoles and with virtual reality headsets, allowing it to tap into the entire gaming spectrum. However, almost three-quarters of all users access Roblox using their mobile phone with the rest mostly using their computers.

How does Roblox make money?

Roblox makes most of its money by selling virtual items on its platform. People can sign up, create an avatar and access the vast majority of the virtual worlds for free. However, it allows users to buy items to help them get the most out of each specific experience and sells more generic items to personalise avatars by adding the likes of gestures or clothing.

Importantly, the developers decide the parameters of the experience they create, including the items on offer and the price. Roblox simply takes a slice of each transaction, with the rest flowing to the creators.

This means both professional and amateur developers use Roblox to create virtual worlds in the hope of making income for themselves, in the same way third-party sellers use Amazon to reach a wider audience.

This model is aimed at creating a flywheel effect. The more developers creating better content, the more users that are attracted to the platform. In turn, the more users toying on the platform encourages more developers to use Roblox to tap-into the growing audience.

Trade between developers and users is facilitated using Roblox’s own digital currency named Robux. Users purchase Robux either in one-off transactions or through a premium subscription service that automatically bills the user’s bank account each month and provides access to discounts and exclusive items. Only a small fraction of its 32 million-plus users frequently pay, with 490,000 daily paying users in 2020. Still, that was up from just 184,000 in 2019 and 125,000 in 2018.

Users then use their Robux to buy virtual items on the platform or to access to a certain experience. For example, if a user buys a new t-shirt or hat for their avatar, then the Robux is paid to the developer of that item and Roblox takes a small cut for facilitating the transaction.

In turn, developers earn more Robux the better their experiences and more popular their items are. Developers can use their Robux to buy digital tools from other developers or to promote their creations. But they can also exchange their Robux into dollars to truly monetise their virtual creations.

There were over 1.2 million developers that earned Robux in 2020. However, developers have to qualify to take part in the Developer Exchange Program used to convert Robux into dollars and only 4,300 of them met the necessary criteria last year. This includes earning at least 100,000 Robux each year, being verified, and ‘having an account in good standing’.

Roblox said there were over 1,250 developers that earned over $10,000 in 2020 and over 300 that earned over $100,000. This suggests that although there are millions of people developing stuff on Roblox, only a small fraction are able to earn money through the platform.

Still, serious sums are being made. Roblox paid out $328.7 million to those 4,300 verified developers in 2020. That was up from $112 million being dished-out between 2,600 developers in 2019, showing that more developers are starting to use Roblox as a way to make money.

It is worth noting that Roblox’s business experiences some seasonality, with sales peaking in the fourth quarter of the calendar year when spending increases during the holiday season.

Is Roblox profitable?

No, Roblox is not profitable. The company is growing fast but losses have widened significantly as it ramps up spending on R&D, infrastructure and paying-out cash to developers.

(Source: Roblox)

Roblox has already issued guidance for 2021. It expects DAUs of between 34.6 million to 36.4 million, representing annual growth of 6% to 12%. It is targeting revenue of $1.44 billion to $1.51 billion, which would be 56% to 64% higher than in 2020.

Does Roblox pay a dividend?

Unsurprisingly, as a loss-making business, Roblox has never paid a dividend to its investors and the company does not intend to pay one in the foreseeable future. It will be a while even if Roblox escapes the red and enters the black as it will look to reinvest any future earnings back into the business to fuel future growth.

What is Roblox’s strategy?

With users generating all of the content, Roblox’s job is to ensure the platform gives developers everything they need to create better experiences for users to enjoy. The company will continually invest in new technology to help improve its platform, whether that be in improving the graphics of its avatars, improving the audio of virtual worlds, adding more social features or introducing the tools needed to make experiences more realistic.

It also wants to increase its appeal among adults. The vast majority of its users are children, but Roblox hopes developers will be able to create more adult-themed experiences as it expands the platform.

Roblox currently has users in 180 countries, but most of its paying users are in the US, Canada and the UK. It hopes to penetrate other markets by investing in tech to help with stuff like translation. It is also exploring the huge potential in China through a joint venture with gaming and tech giant Tencent.

Roblox will also be tasked with improving monetisation. Helping developers maximise their earnings potential will be key to this, as the more successful its developers are, the more money Roblox can make. The introduction of its premium Robux subscription is a demonstration of how it is trying to increase spending and conversion among its users. It also wants to expand other revenue streams that currently make minor amounts, such as allowing companies to advertise within the platform.

Who are the directors of Roblox?

Roblox is still under the guidance of one of its founders, David Baszucki, who is president, chief executive and chairman of the business. He is supported by the following executive board members:

• CEO, Chairman and President – David Baszucki
• Chief Business Officer – Craig Donato
• Chief Financial Officer – Michael Guthrie
• Chief Technology Officer – Daniel Sturman
• Chief Marketing Officer – Barbara Messing
• General Counsel & Secretary – Mark Reinstra