A few months ago, I took a look at RBLX. I (in retrospect regrettably) didn’t pull the trigger, but I promised to follow up after Q3. Unlike some of the board favorites, RBLX knocked the quarter out of the park and I have a better sense of where they are going.
First, let’s have a quick review of the numbers:
Last 4 quarters: **Quarter 2020Q4 2021Q1 2021Q2 2021Q3** Revenue $310 $387 $454 $509 YOY Growth% 110% 139% 127% 102% QOQ Growth% 23% 25% 17% 12% DAU* 37.1 42.1 43.2 47.3 YOY Growth% 94% 78% 29% 31% QOQ Growth% 2% 13% 3% 9% Bookings/DAU $17.30 $15.48 $15.41 $13.49
*DAU = Daily active users
At first glance, growth is slowing down. So why did the stock pop 42% after earnings were announced? First, the numbers were way better than estimates. Growth is slowing from pandemic levels but remains very high. Second, the platform is maturing is ways that should eventually bring in a lot of money.
I think I see it. They talk about the “metaverse” as a place where users can interact in a 3D virtual world. There were two stories highlighted on the conference call.
Chipotle built a Halloween event where people would visit a virtual restaurant with their avatars dressed in Chipotle inspired costumes in return for coupons for free (real) burritos.
In another event, a virtual Vans experience allowed visitors to skateboard, see new Vans merchandise, and “immerse” themselves in the brand. Management said it is a logical step to enable purchases through the platform.
My second takeaway from the call: Roblox being a low code/no code development platform allows experiences to be developed extremely quickly. When Squid Game took off on Netflix, developers on Roblox created an experience to pair with the show within days. (Hopefully the experience didn’t involve shooting losers in the head.) This rapid development cycle allows content to remain fresh and relevant.
- There is a huge runway. There are 3 billion gamers worldwide, so Roblox can keep adding users for a long time
- There are a ton of ways for the company to monetize the platform which are at very early stages
- Management has been at the helm for a long time and they appear to be doing a great job with execution and have a clear vision for where they are going.
- The growth rate is definitely slowing
- Bookings per daily user is flat at best
- Developers need to be paid to generate content and so gross margins will never be at the level of a true SaaS company
- Roblox still isn’t a mainstream name–they may flounder as they are trying to “cross the chasm.”
- Much bigger names like Facebook are making huge investments to create their own “Metaverse”.
I think the long potential runway are wide range of monetization avenues makes this a compelling investment. I’m taking a starting position.