Industry insights

The ROBLOX IPO is not another typical IPO

  • March 17, 2021
  • Noah Weidner

On March 10, 2020, ROBLOX IPOed on the New York Stock Exchange. Rather than going the route of a traditional IPO, the company decided to use something called a direct listing. Going into their come-to-market moment, the company’s valuation was scrutinized by investors. In the last year, ROBLOX has gone from being worth $4 billion to being a $30 billion dollar enterprise—and that was before they even listed. However, despite all of the hubbub around ROBLOX’s valuation and fundraising, few other IPOs or SPACs will carry the same weight or intensity as the ROBLOX IPO. The reason why is simple: it’s unlike any other company coming to market.

Pandemic life = Roblox revenue

ROBLOX, which has enjoyed tremendous growth because of the COVID-19 pandemic, is a platform for games and gamers. Instead of thinking about ROBLOX as a single game, you should think of it as a platform; or a universe of “experiences” crafted by individual users. Some of these experiences are games like first-person shooters or RPGs. Others are simply showcases of scenery, architecture, or other creations. Some exist for a reason—there might be things that players can do within them—and others might just exist to exist. 

According to ROBLOX’s S-1 filing, there’s over 18 million ‘experiences’ in the realm of ROBLOX, which have been created by over 7 million active developers. 

On top of this universe of opportunities is a digital economy, which allows users to buy digital gear, clothes, and other assets. Users can socialize in-game, create groups around shared interests and intentions, and spend money in the experiences created by other users. The money that goes to developers can then be used to build and advertise those experiences, or even to cash out for real money. ROBLOX has given hundreds of millions of dollars to its developer community through its Developer Exchange Program. That’s not the only flashy number that ROBLOX likes to flex. In fact, one of the most important ones is how long users spend on the platform. In September 2020, users were spending an average of 2.6 hours a day playing ROBLOX.

Roblox world-building is more than meme-worthy

Boomers and Gen Xers might look at that statistic and think: “this is everything wrong with society.” At 21, I’ve heard plenty of old-fashioned folks complain about how young people “don’t know how to talk with each other” or “aren’t prepared for the workforce.” I’ve even heard Millennials appraise Gen Z as “disconnected from the world and reality” (nevermind the fact that we are amidst a pandemic, which has complicated things). However, many fail to understand that online games like ROBLOX represent a new domain; a new world. As such, these games are an added layer to reality—a new way to connect with others and discover. I recommend we take some pause here and consider this:

The first generation of people who grew up playing ROBLOX are now trickling into the workforce. Many were casual players (which, as we’ve seen, casual means spending 2.6 hours on the game daily). Others took it more seriously—they built games, they speculated on digital hats, and they started businesses on the platform. Regardless of how seriously you took the game, you probably learned something. 

Many walked away from ROBLOX with a brief crash course in economics, psychology, supply-demand, branding, creativity, entrepreneurship, coding, 3D modeling, or even politics. Many people might not necessarily advertise that they gained insight from playing a game or building in online worlds, but the most self-aware know they owe some of their worldview to it. It’s the reason that there are so many ROBLOX memes, so many 20-somethings saying “oof,” and it’s a critical ingredient to why the game has exploded in popularity. It’s an “online game,” but it’s serious business for some players.

Reddit and ARK Invest on the Roblox bandwagon 

There are some legitimate concerns about ROBLOX’s hefty valuation. However, that is not going to scare off scores of first-generation “ROBLOXians” who are well into their late teens and twenties. It’s also unlikely to deter the /r/WallStreetBets crowd. ROBLOX was a highly-discussed stock on the subreddit leading up to its IPO and it’s even more popular post-IPO thanks to a blessing from Cathie Wood of ARK Invest. Some retail investors are buying ROBLOX because of its ‘meme value’—and there’s nothing wrong with that. However, I’m buying ROBLOX because of its ‘me value.’ 

Roblox: embedded in the identity of a new generation of investors

Ask anyone who has gotten a healthy dose of ROBLOX about what they did on the platform and you’ll always get a different story. The experiences of players from ROBLOX’s early days (2005-2011) are far-removed from the experiences that users are having today. Back then, things were completely different—ROBLOX had two digital currencies and three different subscription models, developers weren’t paid for building on the platform, and it had a pretty toxic forum community. But at its core, ROBLOX is still ROBLOX. 

It’s still a place where people go to dream up new worlds; to be anyone they want to be and learn something new in the process. I lined up to buy shares—even though it seemed expensive—because of all of those different stories you hear from old ROBLOX users. We all have them and, in truth, I owe a lot to this silly game—many of my friends do, too. I’m investing in ROBLOX because a new generation is rising up on this game now and I believe they, too, will owe something to this game one day.

 

The author of this blog post owns shares of ROBLOX.

Front blog posts reflect the opinions of only the authors who are associated persons of Front Financial, Inc. and do not reflect the views of Front Financial, Inc. or any of its subsidiaries or affiliates. They are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security, and are not an offer or sale of a security. They are also not research reports and are not intended to serve as the basis for any investment decision.

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