Analysis

Will Roblox Be Biggest Video Game IPO Ever?

Roblox is a video game company that has flown under the radar for many years. This is likely to change this month as the company prepares to go public. Roblox has the potential to become one of the biggest video game IPOs ever.

The potential IPO was first announced last fall. The listing has been delayed several times but is currently set for March 10. Roblox will trade on the New York Stock Exchange under the symbol RBLX.

The Roblox IPO has flown somewhat under the radar in part because it will be a direct-listing IPO. This is confusing because instead of issuing new shares, Roblox will be allowing current owners to sell their shares.

Unlike most IPOs this is not a way for the company to raise money. As of the end of 2020 Roblox had nearly $900 million in cash in the bank. In early January, the company raised another $500 million in a private placement.

Roblox has been a growing steam roller for many years. DFC has been tracking Roblox for over 10 years and has seen its usage explode with children in the U.S. With the COVID stay-at-home orders usage and revenue really took off in 2020.

The challenge with products like Roblox is that adults have a hard time understanding the concept. This is not helped when high-end sci-fi buzzwords like the “metaverse” are thrown around. Without trying the product, it is really hard to wrap one’s head around Roblox.

Roblox is basically a game creation tool. It grew out of Interactive Physics, a 2D educational application that allowed students to test physics properties by building their own simulations. Roblox evolved from this into a more sophisticated development tool that launched in 2006 and is constantly adding new features.

The basic concept of Roblox is a cross between Minecraft and Lego. Users create their own individual games and call sell them through Roblox and take a share of the revenue. There were over 8 million active developers on Roblox at the end of 2020.

Unlike Minecraft, Roblox has all kinds of unique experiences/games. There is no set look to a Roblox game as they are basically games created within games by the millions of developers.

The concept of the “metaverse” is often applied to Roblox but this can be confusing. Basically, Roblox is about a social community that allows users to experience many types of games/entertainment activities that have been created by other users. In addition, Roblox is a distribution channel for games created by its users.

The social communication feature of Roblox is huge and was extremely popular for students during stay-at-home. Students were able to get together in Roblox and talk with each other from the safety of their homes. Unlike highly competitive online video games, Roblox is not an intimidating environment for users.

Most games on Roblox are free. However, some games cost Robux which is a virtual currency that is bought with real-world currency. When a product is bought with Robux, the developer of that product earns Robux. By the end of 2020 over 4,300 developers were in the Developer Exchange Program where they could exchange their earned Robux for real-world money.

The concept of a distribution system for user generated content has been around for years. Many companies have looked at tackling this market, including the major console players. Before it bought Minecraft, Microsoft launched the Project Spark initiative. For the PlayStation, Sony has had PlayStation Home, the recent Dreams project and the Little Big Planet games. Perhaps the biggest success was Nintendo’s Super Mario Maker. Super Mario Maker was a limited creation tool for users to create their own Mario levels.

Roblox goes far beyond all those efforts. The games that can be created in Roblox are increasingly sophisticated and the user base is huge. By the end of 2020, Roblox had 32.6 million daily active users (DAU) at an average of 2.6 hours a day each. Bookings in 2020 were up 171% to $1.9 billion.

What is more impressive is that Roblox has been careful about its growth. The company has been slow to rollout to new markets because it wants to focus on safety for children. This means Roblox takes its time rolling out to new countries/languages. In 2020, 68% of Roblox booking were in the U.S. and Canada, even as 2/3 of daily users come from other regions.

If 2021 is also a strong year, Roblox could soar to the upper echelon of video game publishers in terms of market value. The company has quietly flown under the radar to create a platform that not only has a massive base but one that is nowhere near market saturation.

DFC Intelligence just launched its latest industry brief on Q1 2021. A major focus on this brief was that even though console launches in late 2020 received a great deal of news, the biggest story was growth in other segments. This included not only Roblox, but PC games in general and accessories and component companies like Corsair, Nvidia, Logitech and Turtle Beach. The growth in these areas is extremely bullish for continued growth in the video game segment in coming years.

The latest forecasts are part of DFC Intelligence’s ongoing PC game service.

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