Roblox: Pioneering the Metaverse
A children's game on the surface — a dynamic ecosystem and reality-bending immersion underneath.
In this issue, we will be covering Roblox’s:
Background
Management
Operations
Business Model
Virtual Economy
Metaverse
Partnerships & Acquisitions
Potential
Critics
Competition
Financials
Points of Emphasis
Without further ado, let’s dive into it.
1. Background
At its most basic form, Roblox is a free-to-play gaming platform where individuals may design, build, or play games. Currently, there are over 50,000,000 games available to choose from for their 43,000,000 daily active users and their 150,000,000 monthly active users — yes, you read that right.
For those of you wondering, that does make Roblox the most popular game in the world.
However, Roblox is more than just a game — it’s an entire ecosystem where creators (developers) build experiences on Roblox’s creative engine and upload them to the Roblox platform, for players to freely enjoy.
Roblox was created by David Baszucki and Erik Cassel. These two individuals had a long history of working together; they created their first “game” in 1989. This “game” was known as Interactive Physics — a 2D physics lab intended for students that simulated many mechanical physics experiments, both simple and complex.
The program included ropes, pulleys, springs, wedges, gears, joints, motors, and objects of various shape and mass. Within the program, students and professors were able to explore kinematics and dynamics, gravitation, circular and orbital motion, work and energy, rotational and particle dynamics, conservation laws, and momentum and collisions. As you can probably tell, this program was quite elaborate and was considered a revolutionary breakthrough for coding and game design in 1989. Interactive Physics is still available for purchase and is widely used to this day, running on Windows 7 / 8 / 10.
After seeing the success of Interactive Physics, Baszucki and Cassel teamed up again and created what would come to be one of the most played video games on the planet.
In 2004, the beta version of Roblox was launched, under the name DynaBlocks. In 2005, the company changed its name to Roblox, and (after some testing and tweaks) officially launched its game on September 1st, 2006. As the years passed, Roblox became increasingly popular — this was undoubtedly due to the adoption of various platforms. Here is the chronological order of gaming platforms that Roblox is available on:
September, 2006 — launched on PC
October, 2011 — launched on MacOS
December, 2012 — launched on iOS
July, 2014 — launched on Android
November, 2015 — launched on Xbox One
April, 2016 — launched on Oculus Rift
June, 2016 — launched on Windows 10
Clearly, the Roblox team was unsatisfied with just having their game run on PC, and quickly adapted their game for mobile… when the hardware became fully supportive of Roblox’s graphics engine, that is.
As you’ll notice, Roblox didn’t launch on iOS until over 5 years after the release of the first iPhone — this wasn’t because they didn’t want to, but was because iPhones didn’t have the capability to support their platform at the time. Regardless, the team understood the necessity of adopting their game for mobile devices, and got to work building and waited for the hardware to catch up.
Their vision of the future of mobile gaming was pretty spot on, and they were one of the first companies to truly understand the potential.
But the team didn’t stop there — they then tackled console gaming with the Xbox One, moved onto VR with the Oculus Rift, and finally upgraded their game with “a standalone launcher built for Windows.”
In late 2013, Roblox announced the release of its Developer Exchange Program (DEP) — a “long time coming” project that was kept hidden internally. The DEP cannot possibly be overstated as to how critical of a role it played in Roblox’s success, as it allowed developers to earn real-world currencies in exchange for Robux, the game’s proprietary currency.
This gave developers the incentive and motivation to continue adding, improving, and expanding games within the platform, which drives user engagement. Here is a quick breakdown of how it all works:
Developers create and publish games to the platform which either offer cosmetic items for sale within their game or have some aspect of a typical pay-to-play game, where users must pay to progress in their journey.
Users of the game exchange real-world currencies for Robux and spend these Robux on such items/expansions.
Roblox takes their cut of the transaction, pays the app stores, and gives the rest to the developers.
The developers exchange the Robux for real-world currencies.
I will expand on this as the article carries on, but that’s the quick rundown of the process.
That pretty well brings us to the present day, where Roblox stands tall as an all-encompassing, three-in-one gaming superpower, where:
users play the games on the platform, known as Roblox Client
developers create games through Roblox Studio
they offer developers, users, and clientele the infrastructure to build, play, progress, expand, monetize, and save games through Roblox Cloud
Together, these products and services form an ever-expanding ecosystem with greatly powerful flywheel effects.
2. Management
Co-Founders Dave Baszucki and Erik Cassel worked together relentlessly for decades. As one would expect, they became quite close.
On February 11th, 2013, Erik Cassel passed away after a battle with cancer. Cassel’s premature death caused a wave of agony across Baszucki and the entire Roblox community. With time, the sorrow of Cassel’s passing gently transformed into profound happiness and proudness in his memory and all that he created.
The day after Cassel’s death, Baszucki posted a blog on Roblox’s website titled “In Memory of Erik Cassel” where he and other members of the Roblox team shared their thoughts and memories of Erik. In the blog, Baszucki wrote:
All of us at Roblox will miss Erik deeply. He will always be a role model to me and to all who worked with him. We celebrate the time we have been able to spend with him. Erik was incredibly talented, but I will always think of him as the “nicest guy I’ve ever met.”
Erik’s memory lives on inside Roblox forever, with many games dedicating special objects, sacred texts, and easter eggs as a memorial and remembrance of all that he achieved and had given throughout his life.
Founder + Chief Executive Officer
Today, Roblox is run by an incredible management team, with Dave Baszucki still at the helm.
Baszucki graduated from Stanford University with a degree in electrical engineering and as a General Motors Scholar recipient in 1985. Dave then founded Knowledge Revolution with his brother Greg, which developed and distributed “Interactive Physics” and “Working Model” — a mechanical design software. In late 1998, Knowledge Revolution was acquired by MSC Software for $20M. Dave would go on to work at MSC Software as their VP and GM until 2002, when he left the company to start Baszucki & Associates, an angel investing firm.
Interestingly enough, Baszucki & Associates provided seed funding to the then-popular social media service “Friendster” … I can’t help but wonder if Baszucki noticed some tailwinds evolving in the social networking industry and drew inspiration and parallels for Roblox during its creation.
Then, in 2004, Dave Baszucki sat down in a room with Erik Cassel, and the two began imagining “digital legos” — the rest is history.
Chief Financial Officer
Roblox’s CFO is Mike Guthrie, who, before joining Roblox, served as the CFO of TrueCar. At TrueCar, Guthrie led the company through multiple rounds of private funding and “spearheaded its initial public offering” in 2014.
I think it is safe to say that Guthrie gave Roblox the same treatment with their IPO in March of 2021.
Chief Product Officer
Manuel Bronstein is Roblox’s CPO — and he’s very well qualified for the role, too. Bronstein has spent over twenty years in the consumer entertainment industries, serving prominent roles such as:
VP of Product at Google, where he led all efforts involving the creation and development of Google Assistant.
VP of Product at YouTube, where he oversaw mobile, desktop, and living room applications, as well as led efforts in YouTube Kids, YouTube Music, and YouTube Games.
Before YouTube, Google, and Roblox, Bronstein started his career at Zynga and Xbox, where he held several different senior management roles.
Chief Technology Officer
Roblox’s CTO is Daniel Sturman, who has yet another incredible track record. Prior to joining Roblox, Sturman served as the:
VP of Engineering & Support at Cloudera, where he led a team of 600+ engineers and oversaw all software development.
VP of Engineering at Google, where he led the development of cloud products, including the Google Compute Engine and the Google App Engine.
I know — reviewing management is generally quite bland. I include it as I believe it to be detrimentally important in the success and execution of a company. Without individuals with superhuman ambition, integrity, and initiative, no company on earth would make it off the ground.
To conclude this section of the article, I’d like to implement a “first” for me: Glassdoor reviews. I have never included this in any of my previous articles — not because I didn’t want to or because the reviews were bad, I just hadn’t considered it. With that out of the way, Roblox’s Glassdoor page is just about as good as it gets.
These are pretty staggering results, especially for a company of Roblox’s size.
Clearly, at least from a management perspective, Roblox has all its bases covered.
3. Operations
As mentioned briefly at the beginning of this article, Roblox operates through two equally important business divisions built for its customers, with an all-encompassing cloud-computing service powering each. These business segments are known as:
Roblox Client
Roblox Studio
Roblox Cloud
In this portion of the essay, we will break down each segment and assess the roles they play in Roblox’s operations, then we will get to their business model and how they make their money.
Roblox Client
Roblox Client is the actual gaming portion of the Roblox ecosystem — it’s where gamers (clients) gather to enjoy one of the millions of free-to-play games available on the Roblox platform.
Upon opening Roblox and choosing a game to play, all clients are automatically forced into an open, all-immersive, cross-platform multiplayer gaming experience where they are connected to a powerful Roblox computer (known as a server).
The Roblox server powers millions of user-created (developers) games and characters. The clients communicate to the server and the server communicates back, constantly updating various aspects between the game and its connected clients, allowing for all players to see where they are and what they’re doing. This is the sole principle of the Metaverse — if there weren’t real-time updates for all included players, the connected multiplayer aspect of the game would be completely lost.
Roblox Studio
Roblox Studio is Roblox’s proprietary creative engine, powering users and developers by giving them all the tools, services, and resources to not only create their games, but expand, monetize, and optimize them as well.
Their services and resources are truly remarkable and very quite easy to use, should one be dedicated enough to put the time into learning the ins and outs. An individual with no prior coding experience should be able to create an incredibly impressive game if given enough time, using only the free tools Roblox provides in Roblox Studio.
The first step in game creation is downloading Roblox Studio itself. After installing and running the application, the developer is prompted to choose a template to begin creating his game. There are base templates, flat terrain templates, and more elaborate templates, such as castles, cities, racing, or islands — all are meant to aid the developer in the implementation of the game mechanics, making his/her life easier.
After choosing a template, the developer will then be thrown into the nitty-gritty, being to explore and “develop” their new world. Depending on what template was chosen, the brand-new world will look something a little like this:
I’ve never attempted to create a game (or really anything even remotely similar) before, so to me, it looks quite overstimulating. Luckily, should I be interested in giving it a shot, Roblox has hundreds (and I mean hundreds) of free articles, videos, recipes, and tutorials at my disposal.
The creative engine itself is quite impressive — with time and the right skills, developers can make fully integrated 3D worlds capable of supporting:
all gravity-oriented gameplay aspects
character-specific upgrades, like health and shield
day and night cycles
dialog trees for communicating to non-player characters (NPCs)
custom chat bubbles for multiplayer communication
game knowledge for data storage and analytics
cross-platform developments for joined multiplayer across consoles
international formats and localization for global access
custom skyboxes and light sources for an advanced, realistic setting
and much, much more
Roblox Studio gives developers everything they need to create a game of top-notch quality — one that maybe should cost money just to play.
That being said, there are certain limitations that come with developing on Roblox Studio — namely, Roblox Studio isn’t very compatible with anything outside the Roblox ecosystem. In this sense, if you are a developer on Roblox Studio, you can’t just switch companies and start developing elsewhere like many developers for Unity and/or Unreal Engine can.
This isn’t necessarily a bad thing. It has it’s pros and cons in my eyes.
Roblox Cloud
Roblox Cloud is the infrastructure behind Roblox Client and Roblox Studio, masterminding the entire process behind the scenes.
In their own words,
Roblox’s proprietary, fully-managed cloud software and infrastructure removes complexity from multiplayer gameplay, game updates, scaling, matchmaking, and monetization.
That might sound a little intimidating. Let’s break it down.
On the player side, Roblox Cloud aids in:
saving player data on the Roblox platform, both in-game and platform-wide
seamless multiplayer functionality, such as communication and joint gameplay
fast matchmaking when joining games
automatic game updates for rapid rollouts
On the developer side, Roblox Cloud supports:
easy scalability
frictionless payments and transactions
unlimited access to servers, nodes, and storage
real-time data and game updates
Roblox Cloud, as you might expect given the game was founded in 2004, hasn’t always been a feature of the platform. In 2017, the year the platform surpassed 30M monthly active users, Rob Cameron, the Senior Technology Directory at Roblox, realized that their infrastructure was unable to support such a demanding (and growing) user-base, and made the push for cloud-native infrastructure.
If you’d like to learn more about Roblox’s transition to the clouds, I encourage you to read “The 100-Million Player Platform” — a blog by HashiCorp, whose products enabled Roblox to scale their platform far beyond Roblox’s old capabilities. In the blog, it notes:
Dedicated servers were leading to increased resource waste. The company’s reliance on manual workflows and homegrown tooling resulted in significant productivity bottlenecks.
[Rob] Cameron knew that Roblox needed an orchestrator to modernize its infrastructure — a tool that could enable resource management, efficient scheduling, container adoption, and developer velocity at scale.
The switch to the cloud is yet another example of Roblox recognizing the solution to a problem and not being too scared to take the leap. It is innovation and resiliency at its finest.
4. Business Model
So, now that we have seen the synergies between their business segments and how they complement one another, it’s time to get into the weeds — that is, how they make their money.
To fully describe how Roblox makes their money, I’d be a fool not to outline their business model, as it is quite brilliant. I’d be hard-pressed to say that Roblox doesn’t really do anything apart from keeping everything smooth and operational because that isn’t quite accurate, but it does have some components of truth to it. When I say that, it’s not a drag on Roblox in the slightest — actually, it’s quite the opposite. You see, Roblox’s flywheel is so impressive that it spins on its own, and it’s only spinning faster as the years have gone on. Allow me to explain myself.
Roblox is essentially a creative engine and a delivery platform — they provide the tools needed for developers to build any type of game they desire to create, and then they offer not just the developers a place to publish their games, but also the users a platform to play them on.
I’m sure you can see where this is going.
Because Roblox is free-to-build for developers and free-to-play for users, when one wheel turns, they all turn. More developers lead to better quality games in a higher quantity, which brings in more players. More players mean more market opportunity for developers, which incentivizes more developers to join and build. Thus, developers and players work hand-in-hand, spinning Roblox’s flywheel faster and faster, so long as the Roblox team keeps the infrastructure afloat and continues to provide the tools, services, and resources needed to keep each party happy and efficient.
It is easy to picture this flywheel in effect when you compare Roblox to social networking sites with similar business models, like YouTube, TikTok, or even Facebook and Instagram — none of these sites create their own content. Rather, they rely on user-generated content to drive engagement and build the community.
To ensure their creators remain happy and catered to, Roblox launched its Accelerator Program in 2015, where they bring in developers to work with the Roblox team directly by providing feedback and suggestions on game design, product management, and platform practices. Even before the Accelerator Program, Roblox is renowned for directly communicating with its creators in search of ways to better improve its platform.
Pretty cool, right? Do you know what’s even cooler? Roblox has a habit of bringing on some of these skilled creators as interns or even offering them full-time positions at the company. Now that’s cool.
Okay, that’s enough about their flywheel and the precautions Roblox takes to keep their platform running at optimal performance. I think we are ready to learn how (and where) Roblox makes its cash. To outline it simply, Roblox makes money through one of four ways:
1. Robux
Robux, as mentioned earlier in this essay, are the virtual in-game currency that all players must purchase (using real currency) in order to buy in-game items, like cosmetics, clothing, animations, emotes, or fun, limited-time items. Robux are available as either a one-time purchase or on a subscription-based model, known as Roblox Premium.
So, let’s say I’m a Roblox player and I make a one-time purchase of 1,000 Robux for $10. While I have technically given Roblox my $10 already, they can’t count this as revenue yet, as they will ultimately have to share a cut with whichever developer I spend my Robux on. Thus, this $10 is known as a “booking” — money that is spent in real life but hasn’t yet been spent in the game.
Naturally, immediately after giving Roblox my $10, they are only left with $7.50, as the app stores take 25% straight off the top. Then, only after I decide to spend my Robux inside the game and after Roblox gives the developer their 25% cut can the company count the leftover money as revenue — in this case, I contributed $5.00 to Roblox’s revenue. Of course, about 22% of that revenue is tied into platform hosting, support, and investment, leaving Roblox with roughly 27% profit on my initial $10 — a whopping $2.70.
Thank me later for my contribution.
2. Licensing
This way of money-making is much less complicated and quite easy to understand, with way fewer variables, too.
Roblox enters licensing agreements with popular stores and outlets, permitting them to sell Roblox-branded toys and merchandise. To date, Roblox has entered agreements with many retail stores, including Toys ‘R Us, Walmart, Target, Best Buy, Amazon, GameStop, and more.
I was unable to find much on how Roblox merchandise is doing as of late, but I did see that in 2017, at the annual Roblox Developers Conference, it was announced that Roblox toys “outperformed” many other popular children’s entertainment toy lines, including Minecraft, Guardians of the Galaxy, Power Rangers, Star Wars, and Pokémon.
Something tells me that in recent years they were far outpaced by Fortnite toys and merchandise, but that’s just a hunch.
3. Royalty Fees
Investopedia defines royalties as:
A royalty is a legally binding payment made to an individual or company for the ongoing use of their assets, including copyrighted works, franchises, and natural resources.
So, whenever other products and services use Roblox’s intellectual property and display it on their platform or network, Roblox receives a royalty fee, and that’s pretty much it.
Quick sidenote here — should I know more about these so-called royalty fees? If any lawyers are reading this, be sure to let me know if I'm crossing any blurred lines here.
I’m only half kidding.
4. Advertisements
Finally, Roblox also makes money from various brands (such as Marvel) advertising their products on the Roblox platform, whether that be through cosmetic items or in-game events and showcases.
Anytime a brand promotes its products or services on Roblox, they must pay them for it. You know, typical advertising stuff.
We will touch more on how Roblox integrates advertisements into their platform as well as their partnerships and acquisitions shortly.
And that pretty well sums up how Roblox makes their money. It sounds simple because it is simple — however, when you combine powerful flywheel effects and a strong, two-sided network with 150M MAUs, simple becomes quite brilliant.
5. Virtual Economy
Years ago, the Roblox team noticed certain trends unfolding on the developer side of their two-sided economy. They noticed that many developers had created super innovative, wildly engaging games that users loved to play, but they hadn’t focused on monetization hardly at all. Roblox discovered that these were hobbyists — people who had day jobs or young teenagers who were creating such games solely because they had a passion for building and game creation and hadn’t worried about how/if they would make money from them.
So, after many technology-demanding trials, Roblox finally came up with a solution: engagement-based payouts. Now, developers make money just from engagement hours on their games, which changed the course of game development forever on Roblox. Overnight, developers who previously made next to nothing from their games were making over $300,000 a year, which, naturally, caused an influx of new talent to hit Roblox Studio and begin building away.
After resolving the inadequate pay for engaging developers, Roblox realized that they finally had it figured out — their platform was incredibly sticky to developers and users alike, which drove total engagement through the roof. With this in mind, Roblox knew that their next step would be creating, expanding, and fortifying their virtual economy, which is exactly what they did.
Today, Roblox’s economy is incredibly realistic and horizontally integrated, primed for future expansions and optionality — many fail to realize just how advanced their ecosystem really is. Day by day, Roblox is emulating the real-world economy, working toward bringing their virtual economy closer and closer to the modern-day working economy that we see in the real world.
At their headquarters (and remote), Roblox has a full team dedicated to working, monitoring, and analyzing their virtual economy around the clock. Interestingly, this team is not concerned with quarterly or annual revenue. Rather, they focus on a more useful metric, one that very few businesses in the world can fully divert their attention to… gross domestic product. Yes, you read that correctly — Roblox looks at their virtual economy’s GDP to monitor the health of their economy, realizing that a healthy economy with growing users, developers, and products will organically lead to increases in revenue.
Now that I’ve laid down the groundwork and demonstrated not only how sticky Roblox’s two-sided ecosystem is and their process for monitoring the health of their economy, I think it’s time to show all that their virtual economy encompasses.
Because Roblox has developers running full-sized businesses through their platform, they believe that “acting like a bank” is the best way to provide safe, secure, cost-efficient, and scalable solutions to their developers. Of course, they don’t mean that they literally want to act like a bank, but rather they aim to give their developers the same level of trust that they would have with banks. As Roblox expanded, they focused more and more effort on this solution, and now proudly state that:
every single Robux is accounted for and they make sure add up properly
all Robux transferred through them is safely and securely deposited
everything is audited
Additionally, thanks to the Roblox Marketplace and the Roblox Auction House, players may constantly buy, sell, trade, and bid on goods, services, products, and limited-time items. With these features, there is yet another layer of businesses on the Roblox platform — only this time, they are completely virtual. Players and businesses will buy certain items in hopes that they can trade for a perceived higher-value item or try to sell their item at a higher price. You can buy, sell, and trade regular items, limited-time collectibles, and even full collections, which creates added value to the marketplace and plenty of ways to create alpha.
The limited-time collectibles, in particular, are what virtual Roblox businesses are built on. With these items, there are a limited number available (not just for a limited time), which makes them significantly more “valuable” to collectors, thus showing why virtual businesses will scoop them up, hoping to resell for a profit as time passes. This is very similar to StockX, the popular “stock-market-for-sneakers” website where collectors resell shoes for a profit, and to OpenSea, the digital NFT marketplace and auction house.
As you can see, Roblox holds quite the responsibility to its users and developers to keep their platform safe, secure, and efficient, as many individuals run businesses that completely rely on Roblox, both in the real world and virtually.
Just by listening to Dave Baszucki and his team reflect on how far the entire Roblox ecosystem has come, I can promise you that they are happy and excited to continue fulfilling their role in these individuals’ lives.
6. Metaverse
Nobody really knows what the Metaverse will look like yet, we just have ideas, plans, and proof of concepts. However, we do know what the Metaverse will include. It will be a virtual shared space that is available through all forms of media, in which users may collectively interact with virtual or augmented reality.
I recently listened to this podcast (embedded below) by Dave Baszucki, where he and Dan Sturman, Roblox’s Chief Technology Officer, discuss Roblox’s role in the Metaverse and how they are constantly pushing technological boundaries. If you are interested in the Metaverse (or Roblox) I highly recommend giving it a listen.
In this podcast, Dave touched on what Roblox views as the eight principles of the Metaverse but didn’t go into much depth (and left out a couple). I was intrigued, and eager to find out more. It took some digging, but I did come across the complete list of these “tenets,” as Dave likes to call them.
This section of the essay outlines these tenets, breaks them down, and provides examples, use cases, and steps needed to fully achieve them. In no particular order, they are as follows:
Identity
This is your avatar — one of the utmost key components of the Metaverse. For an experience to be reality-simulating, users must have complete control over their personal character within that world.
Avatars are extremely important, especially in social, open-world games, as your avatar is a direct reflection of you — players don’t want to portray themselves poorly amongst friends and strangers alike. This means your avatar must be completely customizable from head to toe, including clothes, accessories, and features.
Roblox is headed in this direction thanks to the Roblox Marketplace, where users can shop for all of the above, try on clothes and test out accessories, and should they like what they see, purchase the items and add them to their closet.
Immersiveness
The Metaverse is completely immersive. For something to be considered immersive, it must feel like the user is actually there, present in time.
Roblox is headed in this direction, but they are far from where they want to be. Ultimately, Roblox aims for its platform to be a complete, physically-stimulated virtual world with real-world mechanics. A couple of examples of this include:
they want cars to have wheels, motors, and axles, and when one of these components fails, the car won’t run properly (or at all)
they want a match dropped in the forest to have the possibility of irreversibly catching the forest on fire
they want players to be able to go to concerts and see their friends waving at them from the other side of the stadium
As you may have guessed, these types of experiences are incredibly dependent on being able to build the technology capable of supporting them, which hasn’t been done before, or even tried… until now.
Friends
Maybe more so than any other game in history, Roblox acts as a social platform. Not only do players participate in games with their real-world friends, but they make new ones through shared experiences within games — this is very similar to how you make friends in real life.
Thanks to the open-world aspect of Roblox, players constantly bump into one another, and often more than once. Naturally, this leads to constant interaction and communication, leading to friendship.
I know I have personally made many friends through games and social networks, many of which I have never met in real life — some of which I haven’t ever even seen their faces and know very little about on a personal level.
Anywhere
Universal accessibility to play and create in virtual worlds is yet another critical emphasis for Roblox. Not only are they trying to connect all players of all devices, but they are attempting to connect these players from a global standpoint — a monumental (but feasible) task.
This is partly plausible already, thanks to Roblox Cloud powering nearly immediate transitions and portals, allowing players to enter and leave experiences across the world on different servers. This breakthrough in itself opens up a world of possibilities should the Metaverse really start to take flight.
Just take a second to think about it.
What if your favorite singer is hosting a concert on the other side of the globe that supports virtual attendance? No problem, just hop on Roblox, buy your ticket, and attend the show. Likewise, what if you and your friend want to watch your favorite sports team together, but are hundreds of miles apart? Again, that’s no problem — visit your friend’s virtual house and watch the real game in real-time on your friend’s virtual television.
The possibilities are endless.
Variety
This aspect of the Metaverse is where Roblox truly shows its potential.
For the other principles to be achieved, there must be an incredibly vast array of experiences for users to enjoy — not just games. Actually, “incredibly vast” might not do it justice; for the Metaverse to truly be an all-encompassing virtual world, there needs to be millions and millions of simulated experiences readily available. This is where Roblox comes into play.
Because Roblox relies completely on user-generated content, they have a leg up on the competition. Roblox has some 7,000,000 developers that are building, creating, and innovating daily, putting out new content faster than it can be absorbed. When the technology becomes sufficient, having these experiences already on hand will put Roblox at a great advantage over the typical developer teams consisting of hundreds or even thousands of individuals. There will be no way for them to catch up, at which point, there will only be one option: do it better.
Economy
I’m not going to go into much detail here as I outlined the key components of a virtual economy in the section above. In essence, virtual economies must emulate real-world economies, complete with marketplaces, changing values, and roles within.
Low Friction
This ties in directly to the fast transportation and immediate portals that I briefly mentioned earlier. Thanks to immediate gratification, Roblox players have the ability to try out new games and experiences whenever they choose — something that is not so easily done in the real world.
Feel like visiting the Grand Canyon for a day? Load up the game. Want to ride in a spaceship? Load up the game. Itching to take a submarine ride through the Great Barrier Reef? Load up the game. Want to see Paris at night from the top of the Eiffel Tower? Load up the game.
I’m starting to feel like a broken record here, but again, the possibilities are endless.
Trust & Civility
Trust and safety lie deep in Roblox’s core values. Because the age group that plays Roblox the most is primarily teens and pre-teens, Roblox makes sure every new feature they roll out is safe and constantly improves old ones. Not only is this comforting from a societal standpoint, but it really weighs heavy with parents, who are very appreciative of all the precautions Roblox takes, whether they be player monitoring, chat restricting, or banning/deleting inappropriate games.
Today, Roblox is currently working hard to implement a voice feature into their platform, where players could host parties with their friends or talk in-game chat. Along with this, they are experimenting with proximity chat — this feature allows you to talk to anybody in the game when their avatar comes within a certain distance of yours, similar to talking to others in real life.
While these features are undoubtedly cool (and very much needed), Roblox has been very reluctant to roll them out, as it is supremely difficult to monitor and filter out speech. For their game to remain safe to play and trustworthy amongst parents, Roblox is tasked with restricting verbal language in real-time — meaning they have milliseconds to filter and bleep out inappropriate words and phrases.
Now, I’m not at all saying that Roblox has these eight tenets already covered — in fact, I don’t even think they are close. But they are headed in the right direction, and having a definitive strategy is part of the battle. Rather, the point of this section was to introduce the structure of the Metaverse and its components, as well as what it will take for any company to achieve them.
We are still in the very, very, very early innings of the Metaverse. Actually, tickets haven’t even gone on sale yet. The stadium hasn’t even been built. That’s how early we are.
I would argue that nothing in today’s world is very representative of the Metaverse at all. Having an office party in VR is not the Metaverse. Exploring an open-world game on your phone is not the Metaverse. But it is a start, and it certainly shows the potential of the Metaverse and the direction it is headed in.
While many of the eight tenets of the Metaverse are technically possible as is, many technological breakthroughs must (and will, eventually) happen before the Metaverse can start shifting toward its final form. For instance, as is, the Metaverse really only encapsulates two of our five senses: sight and sound. Sure, some devices support vibration, which may qualify as another sense added to the list, but it’s very far off from what it will be. For it to be a full-fledged alternate world, there is going to have to be some serious hardware ramifications in the future.
Like I said, the stadium is currently under construction.
I think the near-term practicality of the Metaverse lies within three-dimensional marketing and eCommerce — features that we already see unfolding. Whether it be using AR glasses to visualize how furniture would look in your home, scanning yourself to see muscle and fat composition as you perform tasks, or trying on clothes with incredible accuracy and realism to see how they fit without having to try them on. Once these features are incorporated into regular consumerism, the training wheels will come off and the Metaverse will be underway.
Lastly, I feel it’s important to note that I’m not at all indicating that Roblox will be the sole winner of this space. In my opinion, there will be multiple winners across many timelines throughout the creation of the Metaverse, and first-mover advantage doesn’t really mean a whole lot in this case — whoever does it best and with the users/developers at their core will get the glory. That being said, Roblox is certainly paving the way for what is to be expected within the Metaverse, and they have many comparative advantages and disadvantages over competitors in the space.
As a consumer and technology enthusiast, I’m all for strong competition. May the best company win.
7. Partnerships & Acquisitions
Roblox has more partnerships than I care to bore you with, and the company has acquired a couple of neat businesses as well. Without drawing it out too much, I’d like to touch on a couple of notable partnerships and acquisitions below.
Partnerships
Because of Roblox’s incredible reach (particularly with kids and teenagers, i.e., the formative years in an individual’s life), some of the top brands across the globe are champing at the bit to form partnerships and advertise their products on the platform. Here are some of the more notable ones:
1. Nike
In March of 2019, Roblox collaborated with Nike Air Max and brought “Robloxians” three free new avatars, inspired by the new Nike Air Max shoes.
2. NFL
A few months later, in August of 2019, the NFL partnered up with Roblox in celebration of the National Football League’s 100th anniversary. This collaboration brought bundles of all 32 teams and 5 free emotes to the Roblox Marketplace, allowing Robloxians to represent their favorite team.
3. Disney
Since 2010, Disney and Roblox have been partnered up, collaborating on far too many projects for me to even begin to name. The two entertainment titans have a mutually beneficial relationship, and both deeply enjoy working with one another.
Over the years, Disney has hosted many player and creator challenges, live events, scene recreations, and community parties, as well as listing many Disney-themed limited-time items in Roblox Marketplace. On top of this, there are many Disney-themed experiences on Roblox, including a virtual Walt Disney World Resort.
4. Netflix
Similar to Disney, Netflix collaborated with Roblox to launch their own experience — one where players can explore Starcourt Mall, the setting of the season three finale of Stranger Things.
Inside the mall, users have a few games to choose from, including:
Hawkin’s Lab Escape
Dueling Dice
Delivery Dash
Slingshot
5. Sony
In July of 2021, Roblox and Sony Music announced a partnership, vowing to host more live virtual concerts from Sony Music artists. This comes after the scorching success of virtual concerts on the Roblox Platform by Lil Nas X and Zara Larsson, two of Sony’s premier artists.
The following is an excerpt from Roblox’s blog about their deal with Sony:
The agreement builds on an existing relationship between the two companies that includes previous collaborations such as Lil Nas X’s hit virtual performance on Roblox in November 2020 and more recently the Zara Larsson Launch Party on Roblox in May 2021.
Over 36 million people watched Lil Nas X perform the first ever live virtual concert on Roblox, which included the debut of his hit song, Holiday. In addition, the concert venue included virtual merchandise sales, mini games, a scavenger hunt, an exclusive behind the scenes interview with Lil Nas X, and other interactive activities. Zara Larsson’s launch party broke records as well, attracting over four million visits, the highest recorded visits for a launch party on Roblox to date. The Dance Party took place in and around a virtual rendering of Zara’s Swedish lake house and featured mini games, interactive challenges, and exclusive virtual merchandise sales.
Okay, I think you guys get the point — Roblox rocks, their partners rock, everybody rocks. I’m sure you probably noticed already, but in case you haven’t, let me point it out anyway: Roblox’s partnerships are becoming a lot more frequent (and on a bigger scale).
There is an exciting future ahead.
Acquisitions
Given Roblox is 15 years old already, you’d think that they would have acquired more than just five companies, but they haven’t. Roblox tends to take the “build it yourself” standpoint when it comes to needing additional technology (which I am a fan of, if they have the funds for it), but they have shown they aren’t afraid to just go out and buy it, either.
Roblox’s five acquisitions are:
PacketZoom — October 11th, 2018
Roblox acquired PacketZoom to help improve the quality of their mobile gaming experience and boost their networking engine as they scaled and increased in size.
Imbellus — December 2nd, 2020
Roblox acquired Imbellus to create a new internal team (headed by the founder of Imbellus) to “build a system on Roblox for fair and objective assessments that will help us broaden our sources of potential talent from more diverse backgrounds.”
Loom.ai — February 1st, 2021
Loom.ai was acquired by Roblox in order to accelerate Roblox’s facial animation technology for their avatars by using artificial intelligence, deep learning, and computer vision.
As a sidenote, Dave Baszucki has another podcast episode in which he chats with Kiran Bhat, one of the founders of Loom.ai and the current Senior Director of Engineering at Roblox. To say the least, it is incredibly fascinating and well worth the listen.
Bash Video — August 11th, 2021
Roblox acquired Bash Video, a social video conferencing platform, in an effort to increase their user-base’s connectivity and communication within their platform, though it hasn’t yet been fully implemented.
Guilded — August 16th, 2021
Just a couple of days after their acquisition of Bash Video, Roblox announced that they had acquired Guilded, a platform focused on connecting gaming communities. It is unknown how Roblox plans to implement this acquisition.
And there we have it — that puts a cap on Roblox’s acquisitions. With four acquisitions in the past nine months, I can’t help but wonder… what are they up to?
8. Potential
Roblox has endless potential down the road, and I don’t think they are even close to their final form yet. Maybe more so than any other company I have written about, Roblox has worlds of optionality at their fingertips because of the industry they operate in. I’ll outline some of the bright spots for future growth below.
Advertising
Advertising has been creeping its way into Roblox for years, whether users are aware of it or not. Gucci handbags, Nike shoes, and NFL jerseys are all forms of interactive advertisements, as are Netflix and Disney-sponsored experiences within the platform. However, Roblox, as always, has its sights set on something bigger.
The analogy they use goes a little something like the following:
In your head, I want you to picture Times Square in New York City. What do you see? If you’ve ever been there or seen pictures, chances are high that you probably imagined hundreds of people bustling around the town under the flashy lights and mesmerizing billboards. In fact, one of the main reasons people visit Times Square is exclusively to gaze at the billboards. These billboards are so immersive, fascinating, and jaw-dropping that people fail to realize what they actually are… advertisements.
This is what Roblox aims to achieve. They want their virtual worlds to be flooded with scenic advertisements, and just like in Times Square, they don’t want their users to even notice them for what they are. They want these advertisements to feel like they are part of the experience, not a distraction from it.
All things considered, it’s not that far-fetched.
Stickiness
The teams at Roblox have referred to their virtual economy as a tourist economy — people come to their platform, they hang out for a while, play some games, create a few experiences, spend some money, and then they leave. Naturally, Roblox has been searching for ways to change this and keep user retainment high for all demographics.
They noticed immediate improvements in their “tourist economy” with their implementation of engagement-based pay for developers, as one might imagine — developers started building more and staying on the platform longer, and more and more players transitioned into creators.
While they are still working on user retainment (and user acquisition) across all demographics, Roblox has shown measurable improvements over the past ten quarters.
These retainment levels, specifically for users over the age of 18, are something to keep a careful eye on moving forward.
Blockchain
I know it may sound crazy at first, but just bear with me here…
There are many games built on blockchain that support their own tradable tokens and mint their own NFTs, like Axie Infinity. Many of these games have been wildly successful, and a blockchain integration for Roblox actually makes a lot of sense — something their executives have mentioned in the past.
Should Roblox transition into being integrated within the Ethereum blockchain, a whole new world of possibilities would open.
Rather than Robux being a virtual currency supported only within Roblox’s ecosystem, it would become a cryptocurrency native to Ethereum. This would mean that it may be bought, sold, and traded on the open market, whether the buyer/seller has any direct affiliation with the game or not — it would be just like any other token.
Additionally, because Robux would carry all the same characteristics as regular tokens (such as volume, volatility, and price fluctuations) the currency would effectively be decentralized — meaning the exchange rate can’t be changed by the management.
This may be more important than it seems.
Likewise, limited-time items would truly be limited, numbered, and transactionally tracked as minted NFTs, which adds extraordinary value to creators, players, investors, and the ecosystem as a whole.
For example, a virtual Gucci handbag recently sold for 350,000 Robux, or $4,115… nearly $800 more than the exact same physical handbag sells for in real life. Yes, I know that’s crazy — what makes it even more ridiculous is that there’s technically nothing stopping Roblox from dropping another one (or hundred) of these exact handbags, which would absolutely destroy the value of that item.
Not to be “one of those guys” but… blockchain does fix this.
That’s a lot to process, I know. It’s also likely many years into the future before we begin to hear a definitive yes/no from Roblox regarding whether this is something they are focused on or not.
Nevertheless, I felt it was worth mentioning.
Virtual-to-Physical Assets
I’m not exactly sure how well this theory can be monetized, but it would certainly be a good marketing campaign and would boost demand.
The idea is that if players were to buy a (specific) virtual item for their avatar, they would receive an access code, with which they would enter online and be able to order that exact physical item to be shipped to their home, “free” of charge.
International Growth
International growth is another key area needed to capitalize on for Roblox to meet its full potential. That said, Roblox is already well on their way to global video game domination, especially after their recent announcement that they were cleared to expand into China, one of the world’s biggest gaming economies.
It’ll be interesting to see how the geopolitical issues revolving around China affect Roblox’s user-generated content strategy.
Apart from just China, Roblox has already expanded into many countries, spanning every continent across the globe — and they’ve been growing.
Not only is Roblox well represented across the globe, but they are well-loved, too.
I’ll conclude this area of potential with a quote that resonated with me from their introductory video:
From China, to Brazil, to America… the world began to create as one.
The Creator Economy
This one is relatively easy to understand — more and more individuals are turning away from their typical office jobs and finding flexible, independent work that they are passionate about.
This is right up Roblox’s alley. They empower their creators and give everyone the tools they need to succeed, given they have the passion for it. Many developers are already working full-time on Roblox and supporting themselves and their families — it’s only a matter of time before others follow suit.
For more information on the rise and empowerment of the creator economy (in a more general sense), check out the article I wrote on Fiverr last June by clicking the button below.
Mobile Gaming
Since Steve Jobs introduced the world to the iPhone, gaming has never been the same. Mobile gaming took the industry by storm, and as the hardware and operating systems have improved over time, mobile gaming quickly rose to the top.
Today, smartphones are the most popular gaming device in the world and contribute more annual revenue than all other gaming devices combined.
As Internet penetration pushes deeper into the more remote and desolate parts of the world, what do you think is more likely?
Consumers buy a gaming console.
Consumers game on their smartphones.
I know my theory.
New-Age of Game Monetization
The days of paying a one-time premium for video games are nearly a thing of the past. There has been a dramatic shift in the last ten years of game monetization. Instead of players purchasing the game once and enjoying it over the game’s lifespan, more and more companies are pushing forth in-game items in an effort to monetize their game for its entire duration — so much so that many games are available for free, with all monetization coming exclusively from in-game transactions.
While many may credit Epic Games for really giving this new-age adoption the push it needed to take off via their “battle pass” for their record-shattering game known as Fortnite, I would argue that this isn’t the case. League of Legends, the incredibly popular PC game, was perhaps one of the first major games to experiment with in-game monetization, and the first mainstream mobile games also adopted this model, providing the proof-of-concept.
When Roblox transitioned from desktop to consoles, it outlined the framework and showed that in-game monetization may also be adapted to consoles (where premium, not-time purchases had been the traditional game monetization). Since its inception, Roblox has always been free to play, with all revenue coming exclusively from in-game purchases.
This new shift in game monetization only validates Roblox’s vision and serves them well going forward, especially given their years of experience and data.
9. Critics
As is typical with companies that regularly go against the grain and pave their own way, Roblox has always had its fair share of skeptics. I couldn’t find any short reports on Roblox, perhaps because it is so fresh in the stock market. That said, I have come across a couple of risk factors that are worth keeping an eye on moving forward
Stickiness
The stickiness of Roblox’s platform is at an inflection point — meaning from here, a careful eye should be placed on Roblox’s demographic and user retainment. If they continue to execute at a high level, then we will see many users continue playing and creating as they grow older, thus avoiding the “tourist economy” that they fear.
However, if users move on from Roblox with age and the company is only able to successfully capture engagement from Generation Z and Generation Alpha, this will quickly become a problem. Retaining users as they age is massively important for the monetization of the platform, as children don’t earn their own money and hence have less money to spend on Roblox.
Competition
While competition is a relevant concern for just about every business on the planet, I would argue that from a gaming perspective, Roblox is pretty solid — sure, there may be other games that release and capture some of Roblox’s audience, but generally speaking, these games are fads and become less played with time. Roblox, on the other hand, is a game that players constantly fall back on when alternative hype dies down because it is so versatile, kind of like Minecraft.
Have you ever noticed how Minecraft appears to randomly become the top game on Twitch and YouTube for a couple of weeks every other year?
Rather, I think from a competitors standpoint, Roblox should be most concerned with a new user-generated content platform springing up with either:
a far superior system and creative engine
better exchange rates and lower fees for developers
This kind of platform doesn’t necessarily have to be a gaming engine, either. User-generated content platforms span far more than just the gaming industry — just look at YouTube, TikTok, and Instagram. These platforms reach entertainment, social, music, and even independent work industries, with more applications sure to be discovered in the future. Additionally, with the adoption of the Metaverse and decentralized computing on blockchain, there are sure to be plenty of opportunities rising for creators.
If this were to happen and Roblox suddenly began losing tens of thousands of developers, they would have a real problem on their hands.
I’ll touch more on Roblox’s competition in the next section.
Apple & Google
Popular app stores like Apple’s App Store and Google’s Play Store take some pretty serious revenue cuts from all in-game purchases made on the apps that were downloaded from their stores — around 30% each. While I think it is extremely unlikely these rates will increase in the future (especially after the Epic Games v. Apple ongoing lawsuit), they still pose quite a threat as is.
Perhaps even more of a threat to Roblox’s future is their dependency on Apple and Google — as noted by Pursuit of Return, Apple and Google contributed 35% and 19% of Roblox’s total revenue in 2020, respectively. As one would suspect, this creates certain contingencies pertaining to Roblox’s reliance on these mega-corporations to continue working with them.
However, by doing some quick math, we see that Roblox made Apple and Google $138.6M and $75.2M in 2020, respectively. Clearly, there is plenty of incentive for Apple, Google, and Roblox to keep a good thing going.
Covid-19
As with most technology-enabled businesses and companies within the broader entertainment industry, Roblox received a considerable bump in all operational metrics last year thanks to quarantine.
The immediate concern isn’t really that growth will slow because that is sure to happen — when you have over 40M DAUs, you can’t grow at over 25% year-over-year forever. That is not even close to sustainable. Instead, my main concern is that DAUs will decline and we will start seeing negative year-over-year and quarter-over-quarter growth percentages.
We will surely see a sequential decline in users in the near term — personally, I think it may even be next quarter. This doesn’t worry me. I never judge a company off one or two quarters.
However, if Roblox starts to decelerate growth and posts declining DAUs for five or six consecutive quarters, I would begin to question management and their ability to execute.
From this point onward, I would be very pleased with anything over 10% year-over-year growth in DAUs.
International Expansion
While Roblox’s international expansion is certainly one of its bright spots, there is a lot riding on its execution. If they fail to catch fire like they have in North America, hundreds of millions of dollars in operational costs and failed partnerships will be tossed down the drain.
Currently, all eyes are on China and how they transition into the Roblox world. There is no doubt in my mind that Roblox’s platform will attract their target demographic, but I do have my concerns.
Chinese regulators must continuously approve all games that are to be made accessible in China — a very rigorous process. These regulators may deem games and platforms unfit at a moment’s notice, banning them from all app stores.
The Chinese Communist Party has been known to crack down on forms of entertainment, specifically gaming amongst Chinese minors.
For example, in November of 2019, China’s government enacted a new law banning the use of video games from 10:00PM to 8:00AM each day for children under the age of 18, as well as limiting the amount of time spent playing video games to 1.5 hours on weekdays and 3 hours on weekends. Additionally, this law regulates how much any single player may spend on in-game purchases each month, depending on the player’s age.
Nothing is stopping the CCP from cracking down even harder on any of these regulations.
However, regarding the first bullet point, if Roblox and/or many specific Roblox experiences are not approved (or suddenly banned) by Chinese regulators, Roblox has the option to tap into China’s gaming potential via an alternative route thanks to Roblox Studio, as this TechCrunch article notes:
“Roblox China may only introduce the platform to Chinese developers, asking them to join and make content for the global market, not necessarily bringing the platform to China under such heavy regulations.”
10. Competition
Roblox’s competition is quite peculiar and very hard to define. They are kind of competing with many different companies across a variety of different industries, but not entirely.
There could be a case for them competing with gaming franchises and platforms, such as Call of Duty or Assassin’s Creed, for user engagement and following… but not really. Many players of Call of Duty and other popular gaming franchises typically rotate to the newest edition of the game each time a new one is released, which acts as a complete reset, leaving the old edition behind.
Contrarily, Roblox has carved out its own niche of players — a niche that is loyal and consistent. Because Roblox is a single platform with millions of games, players get a fresh start each time they try out a new game but never have to leave the ecosystem, thus keeping the same avatar, items, awards, and rankings. In this sense, players can (and do) bounce back and forth between games often — in many cases, what game you currently play on Roblox has much to do with which friends you are playing with or which game you are currently the most excited about.
Additionally, many popular gaming franchises’ players are a completely different demographic from that of Roblox’s — rarely will fans of graphically-advanced shooter, racing, or open-world games also enjoy Roblox, as even though Roblox has such game types, the pixely, low-definition feel of the games is not for everyone.
A case may also be made that they compete with game creation engines for developers, such as Unity or Unreal, but again, only hardly. Since Roblox developers must build in Roblox Studio, developers tend to be naturally divided — developers on Roblox tend to keep developing on Roblox as opposed to switching to a different creation engine, and vice versa, as the switching costs are just too high. Additionally, Roblox Studio has a variety of developer resources and social aspects that draw in developers and, perhaps more importantly, encourage non-developers to take a stab at game creation — it is not at all uncommon for Roblox players to transition into becoming full-time developers.
Yet another possible competitor of Roblox may be various social networking platforms — this may range from Snapchat and TikTok to Twitter and Facebook to Xbox Live and PlayStation Network. As of July 2021, there are over 4.48B people across the globe that are socially connected, with all arrows pointing upward in the future as Internet penetration expands.
That said, Roblox certainly isn’t a direct competitor with many of these widely used social networking services, like Facebook, TikTok, and WhatsApp, as while all are social platforms, they have different use cases.
Facebook, at its core, is used to share thoughts, photos, and general daily activity, TikTok is used to scroll endlessly, watching random short videos that are shared directly to your feed by a suspiciously advanced algorithm, and WhatsApp is used more as a messaging-exclusive platform for quick communication.
Roblox, on the other hand, is only used for in-game communication amongst friends and strangers alike. Still, without this networking feature, Roblox would be far from what it has become today and wouldn’t even have its foot in the doorway to the Metaverse.
If we boil everything down, we will see that Roblox draws its closest comparison, and therefore its biggest competition, with another friendly face: Minecraft. Together, these sandbox-style games are two of the largest individual games of all time, each with millions upon millions of daily active users and hundreds of millions of copies “sold” over the years.
Roblox and Minecraft each have relatively young target audiences, though many adults also deeply enjoy playing their games — each demographic may find themselves immersed in gameplay for hours on end. Again, it is hard to directly compare video games to one another because more times than not, especially with games as similar (demographically-speaking) as these two, a user of one is likely a user of the other. Nevertheless, let’s run through the numbers (via Business of Apps):
In 2020, Minecraft had over 130M monthly active users (MAUs) compared to Roblox’s 150M.
Minecraft did $415M in revenue in 2020, while Roblox did $920M.
Clearly, we see Roblox’s monetization is supremely better than Minecraft’s, as they nearly doubled their annual revenue despite having a very comparably sized user-base.
Perhaps more importantly, however, is the difference between the two ecosystems — Roblox’s is robust with millions of games available for players, many of which were created by unique teams of individual developers, while Minecraft’s is very one-dimensional with few alterations and only a handful of game variations.
Moreover, Roblox empowers the players much better by encouraging and tutoring players who are interested in game creation on Roblox Studio, which not only spins the flywheel but provides ample opportunity for players-turned-developers to earn some serious cash from the platform. On the other hand, Minecraft has Minecraft Marketplace creators who are only able to design cosmetic items, such as player skins and texture packs. That said, it is reported that Minecraft Marketplace creators collectively earn roughly $1M each month — this may seem quite impressive, but it’s breadcrumbs compared only to the 3+ developers who earn over $10M each year on Roblox, let alone the 30+ developers who earn $1M or more each year.
Lastly, I feel it’s important to note one critical difference between these two games: Minecraft gives you the option to play multiplayer, but inadvertently directs users toward single-player. Contrarily, multiplayer is built into the core of Roblox, which leans heavily into the social aspects of its platform. It may seem like a minuscule detail in comparison, but it is quite well versed that multiplayer games are far stickier than single-player or campaign games.
People have more fun when they do something with their friends. Who would have thought?
11. Financials
Now, because I know this has been a rather long article, I’m going to skim through the financials, highlighting the important data. In order, I’ll review the following:
income and cash flow statements
balance sheet
useful operating metrics
stock price, short interest, and valuation
Let’s begin.
Income & Cash Flow Statements
Last year was a record-breaking year for Roblox — one in which they beat all prior estimates by staggering numbers. In 2020, Roblox’s top-line grew 81.7% year-over-year to $923.9M. To follow this up, they reported $387M and $454.1M in revenue for the first and second quarters of 2021, respectively.
Of every quarter represented on the graph above, Q2 2021 is perhaps the most impressive. Even with the lifting of the mask mandate, quarantine’s end, and the beginning of summer, Roblox still comes out and reports an astounding quarter — a true testament to Roblox’s user-base.
As per usual with high-growth companies, Roblox’s expenses have increased dramatically over the years. Roblox outlines their expenses in four ways:
Cost of Revenue
Personnel Costs
Infrastructure, Trust, and Safety
Developer Exchange Fees
The graph below will show how these four expense “buckets” have increased over the past ten quarters.
It’s worth mentioning that for whatever reason, Roblox only includes certain infrastructure expenses in their above graph, leaving out $33M. Additionally, not all of their operating expenses are accounted for under personnel costs. Below you will find the complete income statement regarding their revenue and expenses in Q2 2021.
As an investor and/or potential investor, these expenses would not scare me. When I believe in a company and its mission, I love when they bet big on themselves. However, I do wish the company would be more transparent on where the expenses are coming from.
Additionally, Roblox’s net income is drastically trending in the wrong direction, with the company reporting a net loss of $142M in Q2 2021. On the contrary, Roblox’s free cash flow increased over 70% year-over-year to $168M in the same quarter.
Let’s compare this to their free cash flow, which also increased nearly 70% year-overyear in Q2 2021 to $168M. Because the company has only been public for two quarters, finding historical cash flow statements proved to be more difficult that I’d like to admit — the only data spanning past the most recent two quarters was incomplete, as Q3 2020 was unaccounted for, as you’ll see in the graph below.
Lastly, while pretty uninteresting, I feel it is important to note that Roblox’s gross profit margin has remained incredibly consistent over the last year and a half — it has never dipped below 73% and has never risen above 75%.
Balance Sheet
Traditionally, balance sheets are relatively boring — Roblox’s is no different. Allow me to quickly provide you the basics, as of Q2 2021:
$2.4B in current assets
$3.1B in total assets
$1.8B in current liabilities
$2.5B in total liabilities
Thus, Roblox had roughly $600M to play with… that is, until they made those two acquisitions of Bash Video and Guilded last month.
Useful Operating Metrics
In my opinion, Roblox has four useful operating metrics that warrant a look:
Bookings
Daily Active Users (DAUs)
Average Bookings per Daily Active User (ABPDAU)
Hours Engaged
Because I’ve touched on all of these somewhere throughout this essay, I will not go into too much depth on any of them.
Bookings (money that has been exchanged for Robux but hasn’t been spent on the platform yet) came in at $665.5M — only a sequential increase of 2%.
As you can see, Roblox has been stair-stepping along in terms of bookings, with one plateau followed by another. I’m curious to see if this next quarter will prove to be any different.
Roblox’s daily active users continue to be on an upward trend, however, with the platform hitting a record 43.2M DAUs in Q2 2021.
Likewise, the company’s hours engaged have also been increasing sequentially, albeit at a snail’s pace.
Lastly, Roblox’s average bookings per daily user (what a mouthful that is) have been on the decline as well, coinciding with slower growth in bookings and daily active users. As you’ll see, the company experiences significant seasonality, with the fourth quarter being the best of the year, historically.
It must be so easy to shop for kids these days during Christmas.
Again, if I were an investor, I wouldn’t be too frightened by these metrics — Covid-19 boosted this company to heights that weren’t projected to be reached until at least 2023. If you’re an investor in Roblox, you aren’t invested for what they are, you’re invested for what they will become.
And, in that sense, the next few quarters might present some pretty tempting times to buy.
Stock Price, Short Interest, and Valuation
Roblox currently trades at $84.60 — up just 21.38% since its IPO in March of 2021, which is quite surprising given how much higher many recent technology IPOs are trading.
Roblox currently has a market capitalization just under $50B — a much higher valuation than before the company went public. Given the IPO boom that has elapsed over the past year and a half, this doesn’t really come as much of a surprise.
Because Roblox doesn’t have any direct competitors, comparing the companies valuation is a bit difficult. Instead, lets look at how their valuation stacks up against that of companies that compete in similar spaces, being:
social networking
virtual reality
video games
creative engines
At the time of writing, Roblox has 521.56M shares outstanding and a float of 282.68M shares — of these shares, 19.71M are being shorted, down 2.6% from last month. This shows that 3.43% of shares outstanding and 7.11% of the float are currently being shorted.
To finish, let’s compare Roblox’s valuation to that of its peers — fellow public companies in the gaming, alternate reality, and social networking spaces.
Pretty comparable in the grand scheme of things.
12. Points of Emphasis
First and foremost, I’d like to apologize for the length of this article — I may have gotten carried away at times and written more than necessary. Sometimes I just can’t help myself, especially when it is about a topic with so much unknown. If you enjoyed the article, I hope you learned something useful — if you didn’t enjoy the article, I surely just wasted a fair bit of your time.
To wrap this up, I’d like to outline a few of the points that I really want to drive home:
Roblox has recorded a record number of DAUs for each of the last ten sequential quarters, most recently announcing 43.2M for Q2 2021.
Roblox is on pace to do about $1.7B in revenue in 2021 — a staggering $800M more than last year.
The company has been aggressively targeting M&A in the past nine months, with the majority of its acquisitions coming from outside the world of gaming.
They have no single competitor. Rather, they compete on a smaller scale with many different entities.
Roblox’s flywheel spins itself thanks to UGC, similar to that of YouTube and/or TikTok — it’s a classic “if you build it, they will come” model (so long as you build it the right way).
The gaming industry as a whole is already bigger than the music, movie, and television industries combined and is set to grow tremendously over the next decade.
Thanks to the adoption of mobile gaming, in-game monetization methods were catapulted into the top spot in terms of video game monetization — an area few platforms know better than Roblox.
The Metaverse and blockchain open up unprecedented worlds of opportunity for Roblox moving forward.
Now, because this has become a bit of a tradition in these articles, allow me to try my best to sum up Roblox in one paragraph:
Roblox is one of the first platorms to truly capture the immersive feeling of a virtual world — whether it be through social networking features within the game, the lifelike economy and marketplaces, the aggregation of virtual businesses, the transparency of its creators, or the constant subconscious advertisements. Right now, Roblox is standing in the clouds with its arms outstretched, holding the virtual reality in one hand and blockchain integration in the other. If they divide and conquer like they always have, the pot at the end of the rainbow might be a whole lot closer than we all think.
There we have it… the end. I’m sure you guys never thought it would come. If you made it this far, I commend you.
Before I leave you guys alone, I’d like to take the time to offer my sincerest gratitude to Ho Nam, Andreas, Drowsy, IQ, Couch Investor, Innovestor, and Investing Lion. These kind individuals greatly helped me out by proofreading, giving feedback, and offering advice on this article during its development. The quality of this article would have been noticeably worse without their assistance.
If you enjoyed this look into Roblox’s background and the unique opportunities that lie ahead, please feel free to share — it really helps me out. My DMs on Twitter are always open and I would love to hear feedback so that I may learn and improve.
As always, thanks for reading! You’ll be hearing from me again soon. I am wishing you only the best.
— N
Excellent!
Thank you very very much