In May 2020, Reuters reported that the video gaming industry would top a record revenue of $159.3 billion by year’s end. While some of this 9.3% year-over-year increase is natural industry growth, a lot of it has to do with the COVID-19 pandemic that’s kept people in their homes and in need of an entertaining respite. Roblox, an online gaming platform geared toward youth, has been able to take advantage of the industry’s rapid development. Now, they’re looking to take the company public through an initial public offering (IPO). Here’s what we know about the Roblox IPO, including why the Roblox IPO date has been postponed to 2021.
- With the help of founders David Baszucki and Erik Cassel, Roblox emerged from beta mode in 2006.
- The platform has grown rapidly in 2020, with a 68% revenue boost and 82% user increase. Much of this is thanks to social distancing during the COVID-19 pandemic.
- The Roblox IPO has been postponed until 2021. This is a result of a whole slew of overpriced IPOs hitting the market, making it difficult to price new shares.
- Investors will want to keep their nose to the ground regarding Roblox’s growth, revenue, and losses—especially after the pandemic ends.
- You can learn more about IPOs here.
A quick company history of Roblox
Roblox Corp. was officially founded in 2004, but the company came out of beta mode two years later. Based in San Mateo, California, two men launched the business: David Baszucki and Erik Cassel.
Today, Baszucki continues to serve as CEO. Cassel was vice president of engineering for the company until his death from cancer in 2013.
Roblox offers numerous games, or “3-D digital worlds,” for their largely tween audience to use. In fact, more than half of their 31.1 million daily users are under the age of 13. That means kids (who aren’t yet investing on their own) and parents of those children are most likely to know what Roblox is at all.
Regardless of age group, the company’s current user base is a huge boost from the 12 million daily users they served in 2018.
Overall, Roblox is more than just a video game platform. Users and developers alike build virtually social communities. As an investor, it’s easy to imagine why something like this would grow 82% in a socially distant 12-month period. With the average user staying on the platform for 2.5 hours each day, it’s clear that the pandemic has contributed to Roblox’s rapid growth.
The main way that Roblox earns revenue is through Robux, a virtual currency that allows users to upgrade their avatar and make in-game purchases. Developers also use Robux to help build their virtual communities.
Roblox pays out some of their revenue to third-party distributors like Google and Apple, who maintain the two largest app stores on the web. Both Google and Apple charge developers a 30% fee for one-time purchases, which you may know from the Epic Games court battle that resulted in the development of the Coalition for App Fairness.
For the first nine months of 2020, Roblox received more than a third of their revenue from the Apple app store and another 18% from the Google app store.
Roblox also makes money from the three subsidiaries under its belt:
- PacketZoom, Inc. – “Fast and reliable content delivery for mobile apps”
- Ceebr Limited – “Coding courses for curious minds”
- LoomAi, Inc – “Avatar platform for enterprise applications”
All of these subsidiaries clearly contribute to Roblox’s end goal of expanding their own platform, which is full of users and developers alike.
In early 2020, late-stage venture fund Andreessen Horowitz spearheaded a $150 million Series G funding round for Roblox. Other investors in the round include Temasek and Tencent Holdings. Despite the large dollar value, it didn’t even get the firms more than a 5% stake. This is because of the company’s hearty valuation of $4 billion.
Earlier Roblox fundraising worth $150 million included investors like Index Ventures, Greylock Partners, and Tiger Global Management. Back in 2017, Maritech Capital Partners led a $92 million investment round.
Neil Rimer, co-founder of Index, said about Roblox, “What we found most appealing about Roblox, aside from the impressive numbers, was the company’s internal assessment of itself not as a gaming company, but as a technology platform. Roblox enables millions to imagine and create by providing them with the tools to do so. It’s this user-generated community that will continue to engage with the platform, because there are no limits to the experience.”
Some of the company’s fundraising efforts are nontraditional. Each year, Roblox hosts the Bloxy Awards, which functions as both an awards ceremony and a fundraiser. In 2020, a whopping 600,000 people virtually attended the Bloxy Awards.
Path to the Roblox IPO
On November 19, 2020, Roblox filed their form S-1 (this registration statement required SEC paperwork for companies that want to go public) on a confidential basis. However, they publicized the document a couple of weeks later on December 1.
It may have been massive growth that got Roblox where they are today, but IPOs tend to come with lofty goals of their own. As a corporation, Roblox believes they have a lot of growing to do—namely in expanding their audience and appealing to an older group.
In the SEC filing, Roblox says, “An early sign of what is possible: our 17 to 24-year-old user age group grew faster than our core under 13 age group in the nine months ended September 30, 2020.”
They also want to continue growing even after the pandemic ends and people begin to spend more time out of their home.
As for who’s helping Roblox reach the finish line for their public offering, there are six investment banks serving as underwriters. Here are the top names:
- Goldman Sachs
- Morgan Stanley
What’s next for the Roblox IPO
According to the publicly released registration statement, Roblox expects to raise $1 billion in IPO fundraising. This value is often a placeholder for large IPOs, so the actual dollar amount will likely vary. However, it’s a good sign that we’ll see quite a big turnout when the Roblox IPO date comes. Smaller companies tend to use a $100 million placeholder, and this is 10 times the size.
When Roblox does go public, they expect to trade under the ticker symbol “RBLX” on the New York Stock Exchange.
Purchases for the IPO shares will be for Class A common stock, which get one vote per share. On the contrary, early investors are privy to Class B shares. These earn an impressive 20 votes per share and can be converted to Class A stock in the future.
Early investors are already getting in on the Class B shares. Some notable investors include Altos Ventures and Meritech Capital Partners, which hold a 23.9% and 11.6% stake in Roblox, respectively. These investors and more are likely to translate a good portion of their holdings to Class A common stock, which they can then liquify.
When is the Roblox IPO date?
The Roblox IPO has been postponed until 2021 due to market conditions. Specifically, the company cites 2020’s string of hefty IPOs as reasoning. Roblox didn’t want to follow too soon in the footsteps of companies like Airbnb and Doordash. With the massive size of these IPOs, the company thought it could make it difficult for them to price their shares accurately.
What investors should know
As a company, Roblox has seen unprecedented growth in 2020. Their bookings rose 171% throughout the first nine months of the year. All things considered, it’s natural to wonder whether this is sustainable.
Roblox knows it’s not. The company said, “We do not expect these activity levels to be sustained, and in future periods we expect growth rates for our revenue to decline.”
That doesn’t mean Roblox won’t continue to grow in different ways over time, but investors should be aware of this before committing to a position.
About that growth…
A 68% revenue boost for the first nine months of 2020 is a major win for any company. However, Roblox has paired it with massive losses. In fact, their losses have increased by more than 400% during the same period. Along with $588.7 million in revenue comes $203.2 million in losses. For the same nine-month period the year prior, Roblox lost just $46.3 million.
Investors can trace Roblox’s recent losses back to content developer payouts and administration fees having to do with the upcoming IPO. Investors will want to check in for quarterly earnings calls to see how those losses are holding up in the future.
Feel free to dig into the Roblox Corporation S-1 registration statement for yourself. In addition to the prospectus, you can learn about the company’s risk factors, dividend policy, income logistics, and more.
Related: How to read an earnings report
For investors who are interested in the offering, the Roblox IPO date postponement may be good news. After all, 2020 is wrought with overpriced shares for newly public companies. This includes Wunong Net Technology, whose stock soared as much as 1000% after going public, and the less-dramatic DoorDash, who ended day one of trading up 86% from their initial share price of $102. If Roblox is this considerate about their initial offering, Class A investors could potentially experience less volatility after the market debut. However, the end result is yet to be seen—and investors should always remain diligent with their research.