Videogame company Roblox Corp. has filed to go public at a time when the pandemic has supercharged demand for online gaming.
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Roblox said Thursday in its documents to underpin the planned initial public offering that the company has enjoyed massive sales growth. Revenue advanced 56% to $488.2 million in 2019 and increased further during the pandemic. Sales in the first nine months of this year rose more than 68% to $588.7 million, according to filing, and bookings in that period surged 171% from a year earlier.
The company said an average of 36.2 million people world-wide come to Roblox every day to connect with friends.
But like many highly anticipated tech public offerings, Roblox isn’t profitable. It lost $86 million last year and $203.2 million in the first nine months of this year.
San Mateo, Calif.-based Roblox isn’t a traditional game developer or publisher. It operates a free online platform that has millions of games created by its own players with tools the company provides. The company generates revenue by selling virtual currency to users called Robux for purchasing in-game perks such as virtual pets or accessories for customizing the look of their avatars.
Part of Roblox’s appeal is that it’s highly social. It’s available on consoles, computers and mobile devices, and friends can play its games together even if they are using different hardware. They can also see which games their friends are playing at any given time and hold text conversations by typing messages into the platform’s chat function.
“This will be a thermonuclear IPO,” said Michael J. Wolf, co-founder and chief executive of consulting firm Activate Inc., which has predicted that gaming will emerge as the next dominant technology platform over the next five years. “It’s going to be huge.”
Roblox, whose past investors include venture-capital giant Andreessen Horowitz, is planning to list on the New York Stock Exchange at a time when demand for at-home entertainment has surged because of the coronavirus pandemic. Global consumer spending on videogame software is projected to grow roughly 20% this year to reach $175 billion, according to analytics firm Newzoo BV.
The massive consumption of gaming has underpinned a surge of investment activity across the sector. The gaming industry has had $10.3 billion worth of mergers, acquisitions and buyouts, and $1.7 billion of venture investments this year through mid-October, according to PitchBook. That compares with $7.8 billion of deals and $1.7 billion of venture investments for all of 2019.
Microsoft Corp. bought the parent of Doom creator Bethesda Softworks in September for $7.5 billion. Meanwhile, shares in Unity Software Inc., a provider of software to create mobile games and other visual content, are up more than 50% since its mid-September IPO.
The health crisis has given Roblox a boost. In October, its mobile app surpassed $2 billion in gross sales, based on estimates from Sensor Tower Inc. The Roblox app also had its best month ever in May, when it made nearly $113 million, a threefold increase from the year-earlier period, the analytics firm said.
Roblox says its nearly seven million developers are on track to earn $250 million this year, up from $110 million in 2019. The company takes a 30% cut of their sales and says its top earners net more than $1 million a year.
The gaming company also has recently expanded beyond its core business, starting to host special events during the pandemic. Rapper Lil Nas X earlier this month performed four, roughly 10-minute sets live on Roblox. The free concerts collectively garnered more than 33 million views.
The company says it has been profitable on a cash-flow basis. The 16-year-old “startup” was valued at around $4 billion earlier this year. Roblox hasn’t yet set an IPO price, said how many shares it will offer for its listing or settled on an exact timing for when its stock will start trading. The company said it would trade under the ticker RBLX.
But investing in Roblox comes with risk. “We do not expect these activity levels to be sustained,” the company said, adding that revenue and booking growth rates are likely to retreat compared to the Covid era.
Its ability to become profitable also isn’t certain. “We expect our costs and expenses to increase in future periods as we intend to continue to make significant investments to grow our business,” Roblox said,
It also said that the majority of its users are under 13 years old, and its ability to protect them represents a business risk. If “we are not able to continue to provide a safe environment, our business will suffer dramatically,” it said.
The company said it has invested in technical and human resources to prevent inappropriate content on the platform, but acknowledged that at times it has failed and could do so again. “This content could cause harm to our audience and to our reputation of providing a safe environment for children to play online,” Roblox said, adding that it has statutory obligations under U.S. federal law. “While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place.”
Write to Sarah E. Needleman at [email protected]