Roblox is a company I’ve been keeping tabs on since its IPO earlier this year because my son has dabbled on the platform. Roblox is a gaming platform where developers and users create their own games and then meet “inside” those games or “experiences.” Most of the creation is drag and drop of pre-programmed elements, so experiences can be created with minimal programming involved.
Revenue is generated with in-game currency called Robux. Like other freemium models, players can play for free and either win Robux in game or buy Robux to upgrade their avatar or access to premium games. The company shares this revenue with developers. There are currently millions of developers and millions of “experiences” available on the platform. It’s an open platform, so quality ranges from childlike amateur to professional developer.
Anyway, Roblox came back to my attention when Facebook announced hiring 10,000 people in Europe to develop the Facebook “metaverse.” One of the press releases I saw mentioned that they were playing catch-up with companies like Roblox.
This led me to ask, “what is the metaverse?” In short–this is the virtual world of science fiction writings (like the Oasis in Ready Player One). The metaverse is a place where avatars meet digitally and engage in “experiences” together. For example, Roblox inked a deal with the creators of “Stranger Things” where fans of the show can play in a simulated version of the show.
So, the long term vision is to have a broad spectrum of 3D experiences that people can share. So far, the growth rate has been very impressive.
Q1 Q2 Q3 Q4 FY 2019 $110.4 $119.2 $131.1 $147.6 $508.3 2020 $161.6 $200.4 $251.9 $310.0 $923.9 Growth 46% 68% 92% 110% 82% 2021 $387.0 $454.1 $675(E) $720(E) $2236(E) Growth 139% 127% 168% 132% 142% Daily Active Users Q1 Q2 Q3 Q4 2020 23.6 33.4 36.2 37.1 Growth 49% 95% 97% 94% 2021 42.1 43.2 Growth 78% 29% Bookings/Daily Active User (like ARPU in SaaS terms) Q1 Q2 Q3 Q4 2020 $10.58 $14.81 $13.73 $17.30 Growth 18% 69% 53% 40% 2021 $15.48 $15.41 Growth 46% 4%
There is a lot of potential here, but it’s a bit of a mixed bag.
- Excellent revenue growth
- User growth definitely accelerated due to COVID 19, but has continued growing post-lockdown.
- Roblox is projected to turn a profit this year with strong profit growth into 2022 and 2023
- The average age of users has been trending upwards which should translate into more revenue per user
- In the past year, the company has been engaging with other media companies to create more compelling professional content like the “Stranger Things” experience noted above.
- Bookings/DAU has stalled over the past year.
- User growth appears to be slowing (albeit from very high lockdown growth rates).
Beyond the numbers, the weakness of the platform is that they don’t seem to have a “hit” game to drive big numbers of users (i.e. Fortnite, which has 350 million players). While there are elements of a SaaS model, they definitely don’t have the stickiness of mission critical business software.
Roblox is already valued at $40 billion. EV/Sales for this year is about 20. Roblox is already valued higher than the traditional gaming companies like Activision Blizzard, Take Two, or Electronic Arts. However, those companies don’t operate on a “cloud” model. When you see your kid pay $10 for a virtual costume for his avatar, the value of a cloud gaming model will make a lot more sense.
Roblox is a fast-growth company that has a lot of potential. With users and revenue/user flattening in the last quarter, the next report which is due after hours on November 8th will be very important.
- Will revenue growth continue at >100%?
- Will user growth, particularly among older kids continue to increase at a high rate?
- Will bookings/DAU increase substantially?
Personally, I feel like Roblox hasn’t yet “crossed the chasm” as Denny likes to say. At a bare minimum, it seems like a lot is riding on the next earnings report–hit or miss and it feels like the stock will likely make a big move up or down. At this stage, I don’t have any confidence in guessing which way it will be.