Roblox, a kids’ content creation tool featuring goofy, Lego-looking characters and popular games about going to magic school, dressing up cute pets, and basically trying to become Naruto, is now worth more than Take-Two and Ubisoft combined. Perhaps the most surprising thing about that news is that it’s… not all that much of a surprise.
That huge valuation comes thanks to Roblox the company (which makes Roblox the game) going public last week via direct listing, and impressing investors enough to reach a first-day valuation of $45 billion. That’s a lot of money, more than Fortnite maker Epic Games was worth last anyone checked ($17.5 billion in August of last year), and a whole lot more than many other companies whose names you hear more often.
So why is Roblox so interesting to people with money, and what does that tell us about games as a whole?
What’s a “direct listing”? For that matter, what’s an IPO?
One key point to be aware of when thinking about Roblox going public is that unlike many other gaming companies that have gone public lately, Roblox has gone public through something called a “direct listing” rather than an “initial public offering.”
In a typical IPO, a company basically creates new shares of itself ahead of allowing its shares to be sold publicly, enlisting outside help from intermediaries, networks of banks and other companies to determine the correct value of those new shares. This process can be a bit costly for companies, as they have to pay extra people to do that evaluation for them, but it also means that when new investors buy into the new shares, they get money right away.
However, in a direct listing, a company doesn’t have to pay any outside parties to do that work for them — because they don’t create any new shares. All that happens is that the people who already own shares in the company — investors, employees, and so forth — can now sell the shares they already have to the public to new investors. That means the company usually doesn’t get any extra money right away because it isn’t selling newly-created shares, but it also isn’t spending any. Essentially, it’s a better option if you’re tight on cash.
Rumors had been in the air that Roblox was planning an IPO for some time, and it explicitly filed for one back in November of last year. But it then delayed the IPO to 2021 in hopes of getting more value out of said IPO while it worked with its advisors to figure out what the best course of action was. Then, in January 2021, it switched its plans to a direct listing, which is what it ultimately ended up doing earlier this week.
How much is Roblox actually worth?
At the moment? A pretty good amount – at least if we’re talking stock.
Roblox began to sell its stock to the public on Wednesday, starting at a suggested price point of $45 a share. Its price rose rapidly to close the day at $69.50, giving the company a market cap of over $38 billion and a total value of over $45 billion, and its stock price has been hovering in that vicinity still today. Assuming nothing really ridiculous happens, à la GameStop, the share value is likely to fluctuate somewhat for a while before eventually settling into something resembling a consistent price, though it’s possible given how steady it’s been in its first week that it already has.
What’s clear, however, is that Roblox is incredibly valuable, particularly by comparison to other video game companies. By comparison, Ubisoft’s market cap is $9.6 billion at the time I’m writing this. GTA V and Red Dead Redemption publisher Take-Two Interactive’s, meanwhile, is $19.5 billion. So Roblox is worth more than both of those companies combined. It’s also worth more than EA, which is at $37.6 billion at the time this was written. It’s still behind some other big gaming giants though — Activision is worth $71.5 billion right now, and it’s also obviously well behind companies that do more than just video games, like Microsoft and Sony. Tencent, the most valuable publicly traded company, is currently worth over $800 billion.
That’s the primary indicator of a company’s worth, certainly, there are some other things to know when assessing what Roblox is worth to people and why. You can look at the company’s revenue, which passed $1 billion in lifetime earnings in 2019, and which reached a total of $924 million in 2020 alone. You can look at net bookings, which is basically a measurement of all total purchases made and includes in-game currency that users didn’t actually spend — Roblox had $1.9 billion in net bookings in 2020.
But you can also look at whether the company is profitable or not, and for Roblox, this is an interesting outlier. When Roblox filed its IPO last year, it was required to disclose its revenues for the last three years as well as other information about itself, during which it revealed that the company hasn’t been profitable since it was founded in 2004. Basically, it costs more money to run than it’s bringing in. For the full year of 2018, its net loss was $88.1 million. In 2019, that was $71 million. And last year, Roblox’s net loss was $253.3 million.
Does its lack of profitability matter, though? According to multiple analysts, probably not. Ampere Analysis’ Piers Harding-Rolls noted in an email interview with IGN that a lack of profitability so far was more on the fact that Roblox has been spending money to grow in recent years, rather than being an indicator of failure in some way.
Ideally, Roblox would be profitable, of course – but for investors that’s not really the point right now. It’s clear that the company has been more focused on scaling and building out the feature set of its platform rather than profitability,” Harding-Rolls said. “It has laid out a roadmap for reaching profitability though including entering new markets, reaching new types of user, engaging with more brands, broadening its entertainment remit and monetizing more effectively.
“While the company has a roadmap it also acknowledges that its expenses are likely to increase and of course it needs to execute on its strategy to be successful, so there are also some risks.”
Niko Partners analyst Daniel Ahmad also noted that the company had been on a massive growth spurt in recent years, and benefited significantly from increased gaming time during the COVID-19 pandemic.
“While it has mostly appealed to a younger audience in the past, the potential of expanding to an older audience, reaching players outside the US (Tencent has a license to launch the game in China) and additional content and monetization opportunities would allow Roblox to grow even further and reach profitability,” Ahmad said.
Why is Roblox worth so much?
If you’re not familiar with Roblox, it can be a bit perplexing as to why it’s so valuable to investors. The most immediate answer is because Roblox is not just a game for kids, as it might appear to anyone who hasn’t dipped in before.
Roblox is a platform, not unlike YouTube or Minecraft, where players can either create their own content to share, or participate in content others have made. It’s targeted toward kids, so its creation tools are relatively simple and easy to use. Creators in Roblox make games, stories, role-playing spaces, social spaces, and more, after which anyone else in Roblox can come participate in those creations. By 2020, Roblox had a total of eight million developers and 20 million created experiences.
What’s more, many of these experiences are monetized, and not just by Roblox, but by the people who make them. In 2020, over 345,000 creators were making money from content on Roblox, and ended up making a total of $329 million between them. That number’s been steadily rising in recent years, and has grown to the point where some of Roblox’s biggest games, such as social sandbox game Adopt Me, have gotten so popular that they now have entire paid development teams working on them. Adopt Me alone reached 1.6 million concurrent users in April of last year.
“Roblox is unique in that it is more of a gaming platform than a traditional video game,” Ahmad said of Roblox’s popularity with investors. “It is also one of the largest games as a platform with more monthly active users than Minecraft [150 million MAUs for Roblox in July of 2020 vs. 131 million MAUs for Minecraft in October]. Its platform focus has allowed millions of developers to create content and game modes for users to play, which has resulted in unique experiences that can attract new users and increase overall play time.”
It’s also worth reiterating Ahmad’s point about Roblox’s investment into expansion, especially in recent years. Aside from its planned launch in China that will expand the game to a new, massive gaming audience, it’s currently available in over 180 countries and 11 different languages. It recently added new monetization features to further incentivize creators to make content that appeals to wide audiences. Roblox is also working on improving its tech and visual fidelity, and hired 400 new employees last year, mostly in product and engineering roles. And it held an official developers conference last year, too — all virtual in Roblox, of course.
So why is Roblox worth so much? Most likely, because investors have noticed all this and more, and believe in the direction the company’s going, thus motivating them to invest in their future.
What does this mean for Roblox, and what does it mean for games?
As mentioned before, Roblox going with a direct listing rather than an IPO means that it isn’t suddenly getting a big influx of cash from going public. According to Harding-Rolls, this direct listing is, at least in part, about prior investors being able to exit and get a return on their initial investments.
“But this also puts Roblox in a stronger position to make its own acquisitions, to appeal to the best talent and to invest in the company to deliver on its strategic roadmap,” he said.
Harding-Rolls’ suggestion is backed up by the fact that Roblox has also had multiple successful funding rounds in the last few years, most recently raising $520 million in January ahead of its listing, meaning it didn’t necessarily need the cash from an IPO to keep growing successfully, though the direct listing will still help matters. And it’s not just acquisitions — Roblox has already proved it wants to keep growing its own platform, and Ahmad believes that’s likely to continue.
“The recent funding rounds and direct listing will help Roblox expand its platform to offer new and unique content to its players and further drive engagement,” Ahmad said. “The company is already experimenting with the concept of branded worlds and collaborative content with brands. There is also a lot of hype around Roblox building out what many are calling the ‘metaverse concept’, a virtual space where users can gather to play, learn and socialise together, fuelled by the in-game economy, user-generated content and developer-created content.
“The educational aspects of Roblox also have potential too, especially in China where Tencent first launched Roblox Education Edition to help teachers and students with coding, game design and other STEM related education areas. We note that the Ministry of Education (China) recently announced that it would promote STEM subjects and Computer Programming education at both the primary and secondary school level, which would be another key opportunity for Roblox.”
This means you’re likely to see a whole lot more of Roblox in the near future if these trends continue. But it’s not the only company taking this tactic. Though it’s relatively unique in games for opting for a direct listing, there have been numerous gaming companies either kick off IPOs or hint that they’re imminent in the last year. TinyBuild (Hello Neighbor), Skillz (Mobile esports tournament platform), Huuuge Games (Mobile casino games), Playtika (Also mobile casino, plus hidden object game June’s Journey), Unity, and Nacon (of Frogwares court battle infamy) have all filed IPOs in the last year. Krafton (PUBG) is actively preparing for one, and Epic Games is rumored to be joining these companies as well.
So why are so many gaming companies opting to go public? Ahmad and Harding-Rolls had similar answers.
“Generally there has been an increase in all types of investment, acquisition and listing activity because the perceived value of games companies has increased substantially over the last couple of years,” Harding-Rolls suggested. “Higher valuations mean a higher likelihood of this sort of industry activity.
“There are a couple of key reasons for this: the demand for original IP driven by competition in the market is helping push up all valuations and also the huge amount of gaming activity that took place during 2020 as a result of the COVID-19 has made games companies more financially attractive. As such, activity may slow down a touch as things start to return to more normal consumption habits but competition for IP will remain high.”
More IPOs means more money for companies to do more things. Those could range from developing out the things they already make, making more games, hiring more people, acquiring other companies, or expanding into more activities beyond whatever they’re already doing. Point being? Video games are, as we already know, a big deal. And a lot of people with money increasingly think so too.
Rebekah Valentine is a news reporter for IGN. You can find her on Twitter @duckvalentine.