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Thursday, November 19, 2020

Roblox files to go public

Roblox, the child-friendly gaming company, filed to go public today.

Its listing comes one day after the lending company Affirm initiated its own public offering and a mere two days after Airbnb’s filing.

Roblox filed confidentially to go public in mid-October, but its numbers were unreleased until today when it published its S-1 document.

The company is not the first gaming platform company to go public this year, with gaming engine Unity debuting earlier this year. After its IPO, Unity shares have rocketed, perhaps preparing the public markets for Roblox’s own debut.

This post will provide an overview of Roblox’s business results, and a quick dig into its history of raising private capital and who owns what in the company as it stands today. TechCrunch will have more on venture capital results, and the nuances of Roblox’s business model once we tease them out of its fresh SEC filing.

Financials

Roblox is a free-to-play game and developer platform, which means users don’t pay to access its service, but there are in-game purchases through a currency called Robux and a subscription service called Roblox Premium, which comprise the bulk of the company’s revenues.

Third-party developers can create experiences on the platform that cost Robux, a model that has seen significant uptake over time. According to Roblox, its developer and creator pool earned $72.2 million in the first three quarters of 2019, a figure that soared to $209.2 million in the same period of 2020. (TechCrunch has a deep-dive into Roblox and its pre-IPO success here if you want more depth in its business mechanics. We’ve also dug into its tech stack evolution here, if that is your jam.)

Roblox has seen similar growth in its total revenues, growing 139% to $312.8 million in 2018, and 56% to $488.2 million in 2019. More recently, the company’s revenue expanded 68% in the first three quarters of 2020 from its 2019 result over the same period to $588.7 million.

The company, then, has grown more quickly in 2020 to-date than it did in 2019, an impressive acceleration at scale. A COVID-derived tailwind has helped the company, with Roblox stating in its S-1 filing that it saw enjoyed “rapid growth” in part of Q1, and all of Q2 and Q3 that it says was “due in part to the COVID-19 pandemic given our users have been online more as a result of global COVID-19 shelter-in-place policies.”

The unicorn gaming company also warned that “in future periods” it anticipates “growth rates for our revenue to decline,” going on to warn that it “may not experience any growth in bookings or our user base during periods” that are later compared to its COVID-boosted 2020 results.

How investors weigh that warning against the company’s growth remains to be seen, but Roblox has had an extraordinary 2020. For example, the company’s bookings — what it defines as “sales activity in a given period without giving effect to certain non-cash adjustments” – grew 62% in 2018 to $499.0, 39% in 2019 to $694.3 million, and 171% to $1.24 billion in the first three quarters of 2020, when compared to the same period of 2019.

That growth is downright impressive. As you’d imagine, the company’s impressive sales gains were derived from rising user interest, with Roblox averaging “31.1 million average DAUs across over 180 countries” during the first nine months of 2020, up from 17.1 million during the same portion of 2019.

Along with more consumers coming to the Roblox platform, the hours engaged also increased. Users on Roblox spent 22.2 billion hours in the first 9 months of 2020, up 122% during the same portion of 2020. Daily active users spend an average of 2.67 hours per day on the platform.

Despite its rapid growth, Roblox, like many unicorns, is still unprofitable. The company lost $97.2 million in 2018, $86.0 million in 2019. Its losses exploded in 2020, with the company posting a net loss of $203.2 million in the first three quarters of the year, compared to just $46.3 million during the same portion of 2019.

Those losses appear to be driven mainly from rising spend across its operations, and an increase in the cost of share-based compensation in 2020 compared to 2019.

However, on a cash basis Roblox appears to be in much better shape than its GAAP numbers would have you initially estimate.  The firm’s operating cash flow grew from $62.6 million in the first nine months of 2019 to $345.3 million in the same period of this year. Over the same period, the company’s free cash flow was $6.0 million and $292.6 million.

Roblox’s numbers demonstrate that its space can be large, and economically interesting. So much so that the company will make a number of VCs rich.

Who owns what?

While private, Roblox raised $335.7 million, according to Crunchbase data, with rounds led by Altos Ventures, First Round Capital, Meritech, Index, Greylock, Tiger Global, and Andreessen Horowitz powering its life until today.

Roblox has around $810 million in cash and equivalents, heading into its IPO. And once it goes public, the company’s investors will start a clock on when they can convert their formerly illiquid shares into cash.

The S-1 gives an idea of who owns how much of the gaming developer platform, and thus who might benefit the most from the IPO. Altos Ventures is the principal stockholder, holding 23.9% of the company at 114,261,961 shares. This is not surprising given how many Roblox rounds it helped lead. Right behind Altos comes Meritech Capital, which owns 11.6% of Roblox, Index Ventures, with 11.1%, Tiger Global at 8.2% and First Round Capital at 7%.

The executive team, in aggregate, holds just 6.8% of the company. David Baszucki, the co-founder and CEO of Roblox, owns 8,252,471 shares, or 1.6% of the company, indicating the true effects of dilution when you are as richly-funded a company as Roblox.

Beyond the numbers

In its S-1, Roblox did address that its success depends on its ability to “provide a safe online environment” for children, or else its “business will suffer dramatically.”

In 2018, Roblox responded to a grotesque hack that allowed a young girl’s avatar to be raped on a playground on one of its games. Other allegations continue, including that the business has offered a platform to criminal offenders to lure children into interacting with creeps off-platform, according to the S-1.

“While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place,” the document states. However, the document does go on to say that communications on its platform are not encrypted “at this time” and that they have an “increased risk” of data security incidents around access and disclosure. With children on the platform, this is a huge weak spot for Roblox.

The business intends to list on the New York Stock Exchange under the symbol “RBLX.”



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