Roblox, a leading online game developer, filed its IPO documents with the Securities and Exchange Commission. But the filing is confidential so the public will likely not get access until to the information until a few weeks or so. Yet Roblox IPO is likely to be red hot when it hits the markets.
David Baszucki and Erik Cassel co-founded the company back in 2004 and would launch the platform a couple years later. The focus was on creating a gaming environment that was safe for children. This required compliance with tough laws but also sophisticated systems.
A key to the success of Roblox: the ability for anyone to create cool games on the platform that use cutting-edge 3D immersive experiences. This has unleashed creativity and has resulted in high levels of engagement.
The Roblox Business
Roblox’s games are free to play. But there are mechanisms to allow for in-game purchases. This is done by using a virtual currency called Robux.
The Roblox games are available on the appstores from Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). There is also distribution on the gaming consoles from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE).
Over the years, Roblox has built a strong following, with about 115 million MAUs (Monthly Active Users) who log over 1.5 billion hours per month. Some of the most popular titles include “Adopt Me!,” “Piggy” and “Theme Park Tycoon 2.”
As for 2020, Roblox expects to post more than $250 million in revenues, compared to $110 million in 2019. A major catalyst has been the Covid-19 pandemic, which has meant that more kids have had time to play games.
But of course there are some major risks for the Roblox IPO. First of all, various video game stocks have had difficulties in public markets. Just look at the performance of Zynga (NASDAQ:ZNGA). The company came public in late 2011 at $10 a share. And what is the stock price now? Well, it’s at $9. Ouch!
There was also a disappointing investor experience with the King Digital Entertainment IPO. The company, which is the maker of the “Candy Crush” franchise, came public in March 2014 at $22.50 a share. But by 2016, the company sold to Activision Blizzard (NASDAQ:ATVI) for $18 a share.
Then again, when it comes to video game stocks, there is always the fear that users will lose interest and try something else. This is especially the case for companies that cater to kids. Let’s face it, they can be quite fickle.
Bottom Line On The Roblox IPO
The most recent funding was in February when Roblox raised $150 million. The lead investor was Andreessen Horowitz and the other investors that participated included Temasek, Tencent Holdings, Altos Ventures, Meritech Capital, and Tiger Global Management. The valuation on Roblox stock was estimated to be about $4 billion.
No doubt, the timing for the Roblox IPO is spot on. The environment is particularly bullish right now for public offerings. In fact, the level of enthusiasm is reminiscent of the dot-com boom of the late 1990s.
Keep in mind that there has already been a successful gaming IPO this year: Unity Software (NYSE:U). The shares are up about 68% and the market capitalization is $23 billion.
There is also buzz that the Rolbox IPO will involve a direct listing. This means that the company will sell existing shares to the public without raising money. By doing this, there will probably not be a big pop on the first day of trading.
And as for the timing of the IPO, it is not clear-cut. But since there has already been a filing, it seems like a good bet that the shares will be issued in mid November.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.