Roblox RBLX tomorrow?

Let’s move on.

Roblox, RBLX comes out tomorrow most likely. Shares are going to be offered at $45/sh as an opening reference point.

https://www.sec.gov/Archives/edgar/data/0001315098/000119312…

Just under $30B on $2.2B non-GAAP (run-rate) revs is my ballpark understanding. 13x sales. The direct listing is supposed to make sure they don’t leave a lot on the table on the first day of trading, like SNOW and ABNB did. Only 13x sales?! I suspect no shares are offered for sale in the morning at $45/sh and the current owners hold on for a feeding frenzy starting at lunchtime? I think what’s going to happen with Roblox is what we would have seen if Minecraft had gone public ~7 years ago instead of just getting bought by Microsoft.

Today was certainly the setup for the public to come into RBLX with great enthusiasm, if one is inclined to see stories and conspiracies.

Anyone have more fully formed thoughts on at what prices they are interested in RBLX, and at what prices they are not interested in RBLX?

-Another Rob

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nope. I got tripped up by the term “Bookings”.

from the SEC filing:

Non-GAAP Financial Measure

Bookings is a non-GAAP financial measure we use to evaluate our ongoing operations and for internal planning and forecasting purposes. We define bookings as revenue plus the change in deferred revenue in a given period without giving effect to certain non-cash adjustments. We believe bookings provide a timelier indication of trends in our operating results that are not necessarily reflected in our revenue as a result of the fact that we recognize the majority of revenue over the estimated average lifetime of a paying user. The change in deferred revenue constitutes the vast majority of the reconciling difference from revenue to bookings. By removing these non-cash adjustments, we are able to measure and monitor our business performance based on the timing of actual transactions with our users and the cash that is generated from these transactions. Over the long-term, the factors impacting our revenue and bookings trends are the same. However, in the short-term, there are factors that may cause revenue and bookings trends to differ in any period.

We use this non-GAAP financial measure for financial and operational decision making and as a means to evaluate period-to-period comparisons. However, non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Bookings is not a substitute for revenue. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. We urge you to review the reconciliation of our non-GAAP financial measure to the most directly comparable GAAP financial measures included below in the tables captioned “Reconciliation of Revenue to Bookings,” and not to rely on any single financial measure to evaluate our business.

Prospective financial information for any period during the year ending December 31, 2021 is unaudited.

Reconciliation of Revenue to Bookings

A reconciliation is provided below for any non-GAAP financial measures provided above to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Numbers below are based on the current expectations of the Company for each of the shown periods and are not a guarantee of future performance or results. For 2021 estimates, numbers reflect midpoint of the estimated range for such measures.


 	  	_________Three Months Ended__________	Year Ended	 
 	  	Mar 31,	2021E 	  	Jun 30, 2021E	Dec 31, 2021E
 	  	(in millions)	 
Reconciliation of revenue to bookings*:
  				  				  			
Revenue
  	$	328	 	  	$	361	$	1,478	 
Add (deduct):
 				  				  			
Change in deferred revenue
  	 	235	 	  	 	152		  585	  
Bookings

  	$	563	 	  	$	513	$	2,063	
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So, Bookings is reflective of pre-purchased “Robux”?

Given their customers, I don’t expect this to be much different than Snowflake: you buy some credits and then spend them willy-nilly like they aren’t actually money anymore. Only this is even better, none of the consumers ever had much relationship to the work behind the money to begin with.

I suppose they are modeling a ‘slowdown’ because of covid re-opening expectations, and everyone will get signed up for baseball and outdoor camps? Yeah, right. When kids are hooked on games, they play them non-stop, when kids are hooked on games that they use to talk with their friends, far and near, they don’t stop talking to their friends at all…

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Anyone more familiar with Roblox’s business?

The growth is impressive, but my big question is the demographic distribution. The S-1 info noted 55% of both the users and hours are children 13 and under. One, I wonder what happens when the world opens up and kids can get back outside freely. Two, I wonder if parents will keep shelling out money for their children under 13 to stay on Roblox when they can get back outside.

For those who know it better, am I being too simplistic on the business model? Just how much risk is there the kids spend the summer outside and end up drifting away from Roblox when they venture back in?

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As a parent of two kids who play Roblox regularly, I can tell you that there is definitely a strong network effect with this product. Kids use it as a primary gaming platform to play with their friends and family members and they have access to an ever-evolving collection of games (top developers release new games regularly). My kids have a PS4 and they barely use it because they prefer to play Roblox on their iPads/computers. There has definitely been a generational shift from console to internet-based gaming.

Also, kids don’t go outside and play as much as we might have in past generations. Helicopter parenting, increased online entertainment options, and generational reliance on/preference for technology in general, has made it more appealing and convenient for kids to stay indoors. I think the year-long anxiety/paranoia about Covid-19, and the associated (but necessary) stay-at-home orders, will only make this generation more reclusive and reliant on online gaming/entertainment. Roblox will continue to serve as a primary gaming and socialization platform for this generation.

In addition, I think there is a lot of long-term optionality for Roblox. I can see them eventually expanding more into toys (they already sell a series of Roblox characters), movies and TV series (similar to the Lego movie franchise), theme parks and clothing (like Disney, promoting popular games and characters), gaming collaborations (licensing their brand to create offline video games), and expanding their product/games to appeal to older customers. These are just some ideas that I can think of, but I’m sure they have more creative folks coming up with other ways to monetize their products.

This company is EXTREMELY promising and I hope to get in on the ground floor tomorrow (at a reasonable price!). My kids are hoping to pick up some shares in their custodial accounts as well. Wish us luck!

Fool on,
Ceez

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Okay, so what I was kind of hoping for was for anyone to suggest their thoughts on what prices were reasonable and what was out of bounds. There was a point last fall where consensus was that “SNOW is (was) just too richly priced!”, but it was sort of like ‘Porn’. “I know it when I see it.” rather than a metric that was agreed upon.

13x bookings, 21x forward revenues is too high, too low, just right?

They are sandbagging, for sure. How much, though? What if they do $2B in revenues (so a 35% overshoot) or if they pre-sell Robux in large amounts so they have a huge bookings number in their non-GAAP metrics?

Is there a directly parallel business model to this? Robux seems similar to pre-buying a wallet of SaaS services like several business tools, for variable monthly consumption. But the spenders are wildly undisciplined, too!

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For other people here that want to know the specific of Robolox, Aphalite did a write-up on 11/27/2020

https://discussion.fool.com/introducing-roblox-s-1-34679190.aspx…

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Questions for the members of the board that know this business:

I read online that RBLX users spent $2.5Billion on its platform through the Google and Apple store.

Based off what I’m reading, Robolox also pays 30% to content creators and I assume it also pays 15%-30% to Apple and Google for payments made through those platforms.

  • How much of its revenue is generated from a mobile devices vs from a PC?
  • Is their PC market share growing faster than the mobile side (one would assume so)?
  • Are they trying to incentivize children to use a computer over a mobile device so that they keep more money?
  • How much of their revenue is made overseas and what’s the growth there?

Not to bring politics into this but if the EU does something drastic and finds the App Store in violation of ‘something’, then this company may become a much more interesting buy.

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Hi fsuarjun,

Pretty much all of its revenue is generated from mobile/tablets - the take for Google/Apple is 30%, and they average around 22-25% payment, so as a percentage of bookings/revenue, you’re looking at 75-85% coming from mobile users. Developer fees is another 13-15% (not 30% as you say, it looks that way as a percentage of revenue because expense is incurred right away, but revenue recognized is delayed 23 months), so right away gross margin is down to 60-65%. Safety and infrastructure is also quite expensive and there won’t be much leverage to be had there, at its highs it was 25% of bookings, but the past few quarters it’s down to around 15%.

Believe most of the games are played via mobile/tablet, but that’s not really relevant to the investment thesis, the platform is meant to be shared across PCs, mobile, and console, and management does not aim to convert users to any one specific platform

Breakout by region is on F-17 of the S-1: https://www.sec.gov/Archives/edgar/data/0001315098/000119312…

In 2020, North America was 69% of revenue (likely lower as % of bookings as revenue lags) versus 76% in 2018. Europe has grown to 18% from 14% over the same period, Asia to 8% from 6%. So internationally is growing but still small amounts

hope this helps

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https://seekingalpha.com/news/3661855-hot-video-game-stock-r…

But according to a company memo recently seen by Reuters, the SEC raised questions about how Roblox accounted for revenues related to Robux. Roblox restated its financials as part of its revised S-1, but actually showed better numbers than before.

The company reported $613.9M of revenues for 2020’s first three quarters, up from a previously disclosed $588.7M. That helped narrow the company’s net loss for the year’s first nine months to $194.5M vs. a $213.3 million previously reported.

I was aware of your writeup in November 2020, but unsure how to effectively read it and apply knowledge of the re-stated accounting, plus they released a new financial quarter’s worth of data and guidance since your writeup.

I point to Starbucks as a model for improving the revenues.

Starbucks operates Starbuck gift cards and payment processes against the pre-paid gift card as vendor specific wallet of funds, to avoid cutting Apple in on app order receipts.

The account is modified and setup on the website to attach a credit card to the wallet with an auto-reload feature when the balance drops below “X”.

No reason to think Roblox could not accomplish the same thing, and provide a parent portal to their kids’ activities within RoBlox, showing who they talk to, how often, what they play, when they spend, etc. to create the incentive for the credit card to be attached to the account on a website instead of going through the App Store parental permissions for spending/acquiring apps.

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I was aware of your writeup in November 2020, but unsure how to effectively read it and apply knowledge of the re-stated accounting, plus they released a new financial quarter’s worth of data and guidance since your writeup.

The SEC was not happy with how conservative RBLX was accounting for its revenue, so made it separate durable and consumable virtual items, where consumable revenue is recognized right away, durable is still amortized over 23 months. As I’ve said, bookings is the number to look at, revenue does not give timely useful information with the way RBLX accounts for it. I did update the writeup in the thread with Q4 numbers, for what it’s worth.

No reason to think Roblox could not accomplish the same thing, and provide a parent portal to their kids’ activities within RoBlox, showing who they talk to, how often, what they play, when they spend, etc. to create the incentive for the credit card to be attached to the account on a website instead of going through the App Store parental permissions for spending/acquiring apps.

IMO this is classic “penny wise, pound foolish” thinking. Margin is important, but absolute cash flow is the metric to target. If you can get 4x-6x the number of paying users by paying the Apple/Google tax (a reminder that 75-85% of its users purchase digital currency through mobile), why does it matter if your gross margin is 25% lower? The “play anywhere” part of their ecosystem is a vital part of their strategy, and it’d be foolish (and awful for our investment dollars) to force their users to a PC only platform.

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Hi Rob, I searched for ‘roblox’ and the post came up? maybe send me an email with your issue and I’ll check whats going on.

re: Roblox, I was interested in the IPO, and spent some time on the Roblox site. It works, but also appears to have a number of issues that I wouldn’t have expected. For example, a search for a popular game had a bunch of duplicate entries for that game. Either the search was broken, or there are a lot of duplicates. Really basic stuff.

Obviously, most people interact with the games they know, using the front-page or the favourites, but thats pretty basic stuff.

That doesn’t have much to do with their finances. The gross margin issue concerns me, because if you lump Developer exchange fees + Infrastructure and trust & safety (which seem to be unavoidable costs of revenue to me) you’re down to 10% gross margin.

I was pretty keen, but less sure now.

cheers
Greg

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Well, RBLX has started trading if anyone wants to jump on board early.

It opened at $65, and has been bouncing around the $72-$74 range since… I’m thinking about it. Over 60M shares traded already.

I picked up a 2% starter position - at this range it’s trading at 26 trailing bookings. Company guiding for only 10% growth in bookings for 2021. Prior to the covid explosion, bookings growth was 39% from 2019 - 2020, so 26x seems fair. I’m betting that growth will continue to be in the 50%+ range though, so will be watching the first 2-3 earnings closely

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Don’t try to understand it using grownup logic Greg. The app works fine. Multiple people can make versions of the same game. Think of the games more like function rooms where a few of them throw the same sort of themed party but the one that does it best will have more people passing through. You can see the stats. The kids either know what they want, explore for fun, use favorites or the join feature to go right to wherever a friend is.

When my 7 year old isn’t playing she is watching YouTube videos about playing (been cutting her off a bit actually). The other day I saw her watching a video and following along to build a creative house in a “bloxburg”. Pretty neat. She has also learned computer skills playing on a 2011 MacBook Pro we still have. We got her a mouse for xmas.

Regarding Apple’s cut, I’m not sure how much they take. I know all our holiday gift cards were done direct through the website. Not an in-app purchase.

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Yeah, you’re probably right about grownup logic. The app does work. However, it does disturb me a bit when I see “fake” games that look like the real one, same graphics, same name but redirect you to another game.

Thats fraudulent to me, and potentially dangerous. Kids obviously sort it out, and most likely get invited to games by friends who’ve already sorted it out, but the key part is… Roblox doesn’t stop it. Why?

It’s way less professional than I imagined for a company with Roblox’s history, and massive “safety” spend. What are they spending it on?

Greg

Yeah, you’re probably right about grownup logic. The app does work. However, it does disturb me a bit when I see “fake” games that look like the real one, same graphics, same name but redirect you to another game. … Thats fraudulent to me, and potentially dangerous. Kids obviously sort it out, and most likely get invited to games by friends who’ve already sorted it out, but the key part is… Roblox doesn’t stop it. Why?

This is what I am talking about. There is no “real game” or “fake game”, there is only community-made games. Anyone is free to do anything they want. Teenagers make games. You can see the same thing in multiple permutations/flavors/quality-levels/etc. None of them are more real than others. The ones that are used more commonly float to the top. I am pretty sure the game name has to be unique though. You will see a bunch of things added on to names like “Welcome to” or “[FREE]”, or whatever. If you search “Bloxburg” which is a favorite, you will see the popular one is called “Welcome to Bloxburg” and has 92.5k (92,500) visitors versus the one 2 down, “Welcome to BloxBurg” which has 15 visitors, or “Welcome to Bloxburg free” which has 24 visitors.

Anyone can make a game. Do it better than others and you get more traffic. That is all there is to it.

ROBLOX DOES NOT MAKE GAMES. These are ALL community-made games. They are simply shared projects. Almost no one makes a lot of money with these games. They do it for fun or because a little money at a young age is a lot of money. A few superstars have created influencer-like presences out of this (like YouTube channels). A few make a lot of money. Most make very little.

If you search for “Tycoon” you can see what I mean. That is more like a genre than a specific game. “Tower” is another search that will show you a lot of variations.

Look around the dev site too https://developer.roblox.com. There are also udemy courses https://www.udemy.com/topic/roblox-game-development/?utm_sou…

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I assume the safety spend is about protecting kids from bad actors. I can’t imagine how bad it would be if they were as thorough as youtube, which we feel we must monitor very closely as parents (even removing it from her device entirely for a while). Roblox would would be deleted/blacklisted from my Kid’s iPad/browser so fast…

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