Thursday Deep Dive: Roblox
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This week on our Thursday Deep Dive we discussed Roblox (ticker: RBLX). The gaming platform is not yet public, but did drop its S-1 last week. Here is a quick summary of what we discussed on the show, but make sure to listen for the full overview:
What do they do? Roblox has two main services for its customers: Roblox Client and Roblox Studio. The “Client” segment is where users can explore the 3D worlds built by developers. The “Studio” segment is where developers build these worlds. Roblox itself doesn’t build games, just the tools that enable other people to build them.
History? Co-founders David Baszucki and Erik Cassel starting working on physics simulation software in 1989. This evolved and eventually turned into Roblox, which was incorporated in 2004.
Industry? Roblox is a mix of two industries: gaming and social media. While a lot of the content on the platform is “gaming,” it also has a big social aspect, especially for kids under 13. With that in consideration, you could argue Roblox competes with Fortnite, Minecraft, Tik Tok, Snapchat, and plenty of other companies.
Management? Baszucki is the CEO (Cassel died a few years back) and has 70% of the voting power for the company. Altos, an early investor, owns 21% of the business.
Valuation? Since it is not publicly traded (but will be soon), we predicted what the market cap would be. Guesses ranged from $30 to $50 billion.
Earnings? Last nine months: 68% sales growth, 170% bookings growth, 50% FCF margins.
Balance Sheet? $800 million in cash, no large liabilities outside of deferred revenue (numbers are pre-raise).
Potential Competitive Advantages? Internal cloud infrastructure, network effect similar to YouTube, and the fact the platform is fun and safe for kids to be on.
Potential Future Growth Opportunities? Joint-venture with Tencent to enter China, branching out from gaming, and upping the monetization efforts.
Highlights? Strong economies of scale, small variable costs, not hit-driven, and not advertising focused.
Lowlights? Could go the way of Minecraft (i.e. just a fad), inorganic COVID-bump, hard to monetize users under 18.
Disclosure: The author is not a financial advisor, and may have an interest in the companies discussed.