Company / Analytics

Roblox IPO: What Investors should know

Video game developer Roblox goes public today with a direct listing on the NYSE today, under the ticker (NYSE: RBLX). Roblox has become a household name since its founding 17 years ago, and investors are excited. The company is currently valued at $29.5 billion and up to 199 million shares are up for grabs. What should you know about the Roblox IPO? And what makes the IPO standout?

About Roblox

Roblox is a US-based online game platform and game creation system that allows users to create an avatar that they can move across titles. Games are free to play, and the company sells digital currency called Roblux that can be used to buy virtual goods and enhance characters. The company currently known as Roblox was first released in 2006. However, it was founded in 2004 by David Baszucki and Erik Cassel, who previously founded a simulated physics lab called Interactive Physics.

What should investors know about Roblox IPO and stock?

Roblox IPO

• Roblox filed to go public late last year but delayed its debut after DoorDash and Airbnb soared more than expected out of the gate. The company was initially set to go public through an initial public offering (IPO) but will now go through a direct listing.
• On Tuesday, the NYSE set a reference price for RBLX stock of $45.
• Unlike traditional initial public offerings, Roblox has chosen to come public via a direct listing.
• This means the company will not be raising any capital. Instead, existing shareholders can sell their shares based on market demand.
• Importantly, the Roblox IPO will be the fifth such direct listing. It follows other tech companies like Palantir and Asana.
• The reference price in a direct listing does not indicate the market capitalization.
• However, sources close to the Roblox IPO said a $45 reference price means the company could be worth as much as $29.3 billion.
• This factors in that Roblox has 652 million shares outstanding. But analysts believe up to 199 million shares will be up for sale when the company lists today.
• Roblox sold its shares in a Series H funding round at $45 per share to Altimeter Capital and Dragoneer Investment Group. The company will use its proceeds to grow itself and build a “human co-experience platform that enables shared experiences among billions of users.”
• The deal valued Roblox at $29.5 billion, an increase of more than sevenfold from its last funding in February 2020 when it raised $150 million in venture funding from Andreessen Horowitz. Its valuation at that time was $4 billion. According to its filings, Roblox indicated it plans to raise an additional $30 million.
• Investors should also note that Roblox is not exactly identical to other game-developing stocks.

Roblox Business

• Roblox allows users to create an avatar that they can move across titles. Games are free to play, and the company sells digital currency called Roblux that can be used to buy virtual goods and enhance characters.
• The company’s revenue jumped 91% in the third quarter, from a year earlier to $242.2 million. Its daily active users almost doubled in the period ended September 2020 to 36.2 million. A metric the company calls “hours engaged” more than doubled to 8.7 billion.

What makes Roblox IPO and stock standout?

• Growth: Roblox has been a huge beneficiary of the Covid-19 shutdowns. The is going public following a period of dramatic growth as kids, who were forced to stay home during the pandemic, spent more time playing its games. As mentioned above, the company’s revenue doubled over the first three months of 2021, but it is safe to say it won’t stop there. Daily active users jumped 85% in 2020 to 32.6 million. The number of hours that players spent on the app more than doubled to 30.6 billion.
• The company’s revenue jumped 91% in the third quarter, from a year earlier to $242.2 million. Its daily active users almost doubled in the period ended September 2020 to 36.2 million. A metric the company calls “hours engaged” more than doubled to 8.7 billion. Measurement firm Sensor Tower said that Roblox saw 159.6 million installs globally from across the App Store and Google Play in 2020, up 43% from a year ago, when it had 111.4 million installs in 2019. Last year, consumer spending on the mobile version of the game more than doubled from the previous year, reaching over $1 billion in revenue globally. In Sensor Tower’s recent report on holiday spending, it found that Roblox was the highest-earning mobile game in the U.S. this Christmas, reaching $6.6 million in gross revenue, up 40.4% from a year ago.
• Becoming a public company means much more pressure to reach profitability, grow its user base exponentially, or both. Therefore, it is likely that the company will pour much effort into attracting even more users.
• Self-containment: Roblox owns and operates its development platform, game design studio, and cloud services, meaning that all of its users stay connected to it whether they are creating a game or playing one. In addition to being a gaming platform, Roblox bills itself as a creation platform for user-generated games. The perk? Roblox gets a ton of content, and developers receive 30% of the proceeds. Roblox says it hopes to spend even more on its developers in the future to incentivize higher-quality games.
• Competition: While it is often considered a fallacy to say that a company has no competitors when it comes to Roblox, this is not that far from the truth. There are other companies with similar platforms and business models, but none have come close to the growth and user capacity that Roblox boasts.
• Revenue Model: Almost all of Roblox revenues have come from virtual items. Users can develop outfits and avatars and sell them. One young couple brought in $49,000 in one month from selling virtual weapons and custom outfits. After RBLX stock hits the public markets, that could change. Roblox could roll out in-game ads, and it has already added a premium subscription service and branded content.