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Video game developer Roblox launches on March 10 through a direct listing after raising $520 million from investors in a private funding round. The deal gives Roblox a $29.5 billion valuation at $45. The shares will trade under the ticker 'RBLX' on the New York Stock Exchange.

Roblox

Direct Listing

Roblox announced its plan to go public via a direct listing. For a hot stock that has a huge popularity factor Roblox will save millions from not paying high underwriters' fees while still taking the company public. Another massive social, technology business Spotify went this route a few years ago. There is a captive investor pool to tap into effectively via the popularity of the platform.

The company was originally slated for December 2020 to go public but cancelled that and chose to raise around $520 milllion through private investors. Reasons for the delay stemed from the SEC asking for for changes to be made regarding how the company accounts for its in-game currency, Robux. The company has made the changes and here we are gamers!

This has worked out very well for the Roblox investors and creators as the pandemic sent revenue to another level. The stock market has also hit record highs furled by quantitative easing and stimulus. With that Roblox valuation is seen at around $29.5 billion which is estimated at seven times what it would have been last year. The company is putting up 198.9 million of its shares through the direct listing, after raising $520 million from investors in a private funding round. The deal gives Roblox a $29.5 billion valuation at $45.

We also live in an era where the retail investor has been empowered, we all have heard about Robin Hood and self directed traders at firms like E-Trade. This process is fairer to retail investors than in traditional IPOs as traditional IPO shares are mostly available to institutional investors. Most retail investors can only purchase the shares after the IPO ramp ups. IPO Technology SPAC's IPO's have been hot since 2020 but it's all about where you get in.

About Roblox

Roblox was founded in 2004 by CEO David Baszucki and Erik Cassel founded Roblox with a "vision of connecting people through immersive 3D environments." Roblox users create games and play games created by other users who become independent content creators. Roblox has exploded in popularity giving a sticky, loyal user base within a self-sufficient ecosystem.

Roblox has grown from user base of several hundred people and exploded into having tens of millions of games played by 32.6 million daily active users. In just the past year with the COVID shutdown, and so many kids doing virtual schooling Roblox has seen its daily users take off 85% over the past year, sales are up 82% along with them. Clearly there is a lot of extra time being spent on video games rather than schooling!

Even the organic immersion of Roblox games where new users and old ones stay and grow together. As more users join Roblox's platform and potentially spend money on those games developers are incentivized to create more games. With that quality improves and the cycle becomes self sustaining as long as content remains popular and evolving. There is a massive social element borne out by the pandemic. Even non gamers stay on to socialise. While adults have facebook you could say. Kids have Roblox for interacting with their friends in their virtual world.

Roblox's cash and equivalents stood at $893.9 million at the end of 2020 up almost three times the $301.5 million the company had at the end of 2019.  This is from  Roblox's latest round of private funding and massive user base increase over the past year. 

Risks

Outside of the risk of buying in a stock market that has been pumped in recent years and particularly technology firms there is the end of stay at home risk. The risk in the stock is changing in the opening up environment and being classified in a category impacted by the back to school and work crowd.  That is the major risk for the stock in current times but it should be noted that the model is self sustaining and is most likely to have a significant users input stay on. It comes down to managing expectations.

According to the company's S-1 filing, "We do not expect these activity levels to be sustained, and in future periods we expect growth rates for our revenue to decline, and we may not experience any growth in bookings or our user base during periods where we are comparing against COVID-19 impacted periods."

It should be noted that despite raising another $520 million in the most recent private funding round the company is running at huge losses. And that could still be the case a few years down the road. 

From The TradersCommunity Research Desk

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