My first post here! Let me know if this isn't the right way to do this!! Wanna provide some thoughts on Roblox!

What is Roblox? Roblox is not just a game but rather a “human co-experience platform”. It is currently the most popular game in the world, specializing in UGC (user generated content). Founded by David Baszucki and Erik Cassel in 2004 (and launching in 2006), the game is a multiplayer platform that allows users to 1) build games and 2) play games (with potential and access to much more). Their mission is to “bring the world together through play”.

Roblox launched on PC in 2006, mobile in 2011, and Xbox in 2016. This multiplatform access led to its explosion in popularity. The company has remained focused on curating the in-game community. Roblox is still free-to-play, monetizing through Robux (an in-game virtual currency), in a series of microtransactions (that could evolve into a full economy (NFTs, creator stock market, etc)).

The game has always had creators at the core of its mission, focused on giving developers and creators the tools to build, rather than aesthetics and flash of the games, with the world remaining pretty blocky until 2015. Most people still view it as a game for kids, but they have a huge opportunity to age up their user base.

They also have the opportunity to break outside of just the game industry (which they have taken steps towards). Roblox wants to expand its platform to encompass all parts of virtual life - the avatars will be used across all facets of existence, from gaming to social media, to education, and to business.

Roblox is priming itself to become a place for work and play, allowing collaboration and socialization. Roblox combines everything in its ecosystem – providing fertile soil for creators to grow, while also providing infrastructure to facilitate broader social interaction.

There are 3 main growth opportunities for Roblox:

I am incredibly bullish on the creator economy, the evolution of social, and the potential of blockchain integration in our daily lives. And I think Roblox is a steppingstone in this path.

Roblox is a trio of products that interact to form an ecosystem: the Roblox client, Roblox Studio, and Roblox Cloud Services.

The Four Roblox Differentiators. Roblox owns everything. The production of games, the distribution of games on the platform, and the eventual monetization. This gives them a lot of space to build out a strong ecosystem (outside of games and into the metaverse!)

These are some of the main levers that I could see Roblox using:

Roblox exists in a fixed economy. They control the exchange rate of Robux to USD which they can use as a point of leverage. Controlling currency rates is a powerful tool.

The Roblox marketplace interfaces between players and developers. Players buy Robux (RS) with real money which can purchase in-game items. The exchange rate is roughly $1 USD = ~R$0.01, which are usually bought in bulk or through a monthly subscription (Roblox Premium). Developers get paid at a rate of R$1 = $0.0035.

If Roblox can spin up their DAUs (primarily through aging up users and getting more developers on the platform) that is a huge lever for growth. There are a couple of ways that Roblox can continue to spin this faster, two main ones being 1) growth abroad and 2) actively shifting their demographics.

Right now, Roblox primarily generates revenue from the US/Canada and Europe (~90% of bookings) but almost 70% of the DAUs come from non-US/Canada. This is huge potential to monetize abroad – they already have the presence, just have to capture the dollars. There’s room for another Considering 30% of the base drives ~$2bn in bookings, there is easily another >$4bn to capture. There are more than 2.7bn gamers in the world – the biggest areas of growth are in Latin America and APAC, expected to grow by 10.3% and 9.9%

As of 2020, about 40% of Roblox users are older than 13 years old – a demographic that they want to continue to age-up. A lot of this will surround getting developers into the platform to build “older people” experiences, which comes from two angles:

Roblox has to age up users to avoid going the path of Wii and Guitar Hero. The network effects are powerful, but there is a lot that the company could do to make this execute faster.

Roblox is spending close to 20% of 2020 bookings on R&D to enhance features and create new functionality. This is pretty low relative to other developers - they have room to spend out here (perhaps in the AR/VR space to entice older users). Aging up users is an important step in monetization because older users can pay more - and their strategy has been working, as the 17-24 year old is the fastest growing category on the platform.

COVID has definitely accelerated their growth, with easily 3-4 years growth in a 1 year time span. With 37.1mn DAUs now playing ~2.5 hours of content a day, the company has a solid base to work from. Roblox is guiding towards lower growth in 2021, but I still decent expansion in their user base over the next several years.

The market is growing. The video game industry is now estimated to be worth 60bn in 2020, expecting to grow to $300bn by 2025, and the VR market is roughly ~S10b, with expected growth to ~$50b by 2027.

Unity, Epic, and Microsoft are other players in the space. The industry has done well in the public market, with Unity IPOing at a $13.6bn valuation in September 2020, trading at all the way up to a $47.8bn market cap at its peak in December.

Below are some rough numbers. Their current valuation placed them at a $29.5bn valuation or ~$45 /share. However, they are set to price north of $65/share most likely. Using $67 a share, this is ~22x 2020 bookings and ~20.5x 2021 bookings. Using a ~25% revenue CAGR (roughly in line with Roku, Spotify, and Unity) and a 10x EV / Sales exit multiple based on a ~$43bn valuation, I can pencil in a 7% TSR CAGR into 2024.

I want to revisit these numbers, but I think that there is upside to Roblox. They are a mature company, with mature margins, and aren’t (too much) of a hyper-growth, flying taxi company.

Roblox saw that the market was frothy with recent tech IPOs. It raised a Series H and has decided to go public via DPO. They are primarily going public to attract more talent (~80% of their workforce are engineers). They will list on March 10th.

I plan to update this as I learn more about Roblox and their future plans. I am really excited about the future of the creator economy, and I think Roblox is an iteration of that growth path. They need to pay close attention to their developers and creators (pay them!), and create a space for their players to truly socialize and grow together.

I am bullish on their goals. I want to revisit this post-DPO, but am excited about this mature, creator-focused, multi-functional platform. I am incredibly bullish on the creator economy, the evolution of social, and the potential of blockchain integration in our daily lives.

And I think Roblox is potentially one step in that direction.