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Online sandbox game ROBLOX went public on Wednesday to great fanfare with investors. The stock’s planned listing price of $45 was ultimately dwarfed as it opened at $63 late in the afternoon, up over 50% from its reference price. This was not surprising to any seasoned retail investor. Prior to the IPO, Wall Street Bets and other social platforms penned ROBLOX as a meme-stock in the making. But behind all the funny, ROBLOX is serious business. 

All companies coming to market in an IPO have to file an S-1 packet with the SEC. Through an S-1 filing, we can start to understand all aspects of a company’s business. We’ve read the entire report and we’ve put together six things you need to know to help investors digest the $RBLX IPO. Let’s dive in:

1. The pandemic boosted ROBLOX to monstrous growth

The pandemic boosted ROBLOX to explosive growth in 2020, which is especially clear in their year-over-year analysis from their SEC filing to go to market. ROBLOX’s daily active users (DAUs) have nearly doubled every year. According to their S-1 filing, they flexed 12 million DAUs in 2018 and nearly 18 million in 2019 — increasing 82%. They also had over 31 million DAUs in the first nine months of 2020 (a 76% increase year-over-year).

These numbers are beefy, and they’re supported by stay-at-home orders and increased time spent online. However, they might remain elevated even after COVID-19 as ROBLOX continues to grow its presence around the world. Other potential expansion options include China, which ROBLOX is already posting roles for. ROBLOX might just be hitting its growth curve.

2. ROBLOX is unprofitable, but double-digit growth might change that

ROBLOX is unprofitable. But according to its S-1 filing, revenue and bookings have grown tremendously in the last two years. ROBLOX reported that bookings for the first nine months of 2020 amounted to over $1 billion, which was a 171% growth year-over-year. The company stated in their S-1 filing that it recognizes “revenue from bookings over the estimated user lifetime of our playing users.” 

ROBLOX actually lays out the “Average Bookings per DAU” (ABPDAU), which is a similar statistic to Average Revenue per User (ARPU) and used by many digital products. ROBLOX’s ABPDAU was $39.93 in the first nine months of 2020. In other words, the company is booking just under $40 in revenue per user. Keep in mind: this game is free-to-play at its core. This means that people are spending real money on subscriptions, power-ups and digital gear. 

Despite their lack of profitability, their free cash flow indicates that ROBLOX knows how to handle their money. This, along with expansion into new markets and growth in revenue and users, will likely help ROBLOX become profitable in the near future.

3. ROBLOX’s developer platform is real business

Some operating with a limited understanding of online sandbox games might be quick to compare ROBLOX to Minecraft, another online sandbox game. However, ROBLOX is not Minecraft — it’s a platform for game developers and creators. The game has a robust digital economy powered by a currency called ROBUX, which allows players to buy digital gear, clothes and other assets. 

The game’s digital economy also encourages developers and creators on the platform. ROBUX can be used to buy power-ups and consumables in the millions of games and experiences on the ROBLOX platform. These are created by over seven million active developers, according to their S-1 filing

Once developers have a sizable amount of ROBUX, they can even apply to have their ROBUX cashed out into their currency of choice through the ROBLOX Developer Exchange (DevEx) program. From January to September 2020, ROBLOX cashed out over $209 million to developers through the DevEx program.

Despite that impressive number, ROBLOX is making nearly three times as much off of the backs of creators. For that reason, DevEx is just another selling point, rather than a loss leader.

4. ROBLOX opted for a direct listing instead of a traditional IPO

Rather than opting for a traditional IPO, ROBLOX decided to go with an alternative option called a direct listing. Direct listings have grown into prominence since they tee’d off with the direct listing of Spotify in 2018 and Slack in 2019. In 2020, Asana and Palantir came to market in a direct listing. 

In a traditional IPO, a company will generally create new shares. The new shares will be sold to investors on a stock market in order to raise capital for the company. They can then use this money for whatever they want — research, development, growth plans or acquisitions. Some companies don’t need capital infusions, and others don’t want to dilute existing shareholders by introducing new shares to the market. For that reason, direct listings have minted their permanence.

ROBLOX’s decision to do a direct listing may have to do with their recent fundraising efforts, which is the core of our next point.

5. The company has already gone on a beefy fundraising campaign

ROBLOX raised a lot of money in the last two years before coming to market. In February 2020, the company raised a Series G which valued the company at $4 billion. The company raised a Series H in January before going public, valuing ROBLOX at $29.5 billion.

The monstrous growth in the valuation of the company might offer pause for investors. The Series H represented a high premium. After their IPO, that valuation multiple could look even steeper. $RBLX was worth $38 billion at the close of trading on Wednesday. 

Creating more shares through a traditional IPO would have represented massive dilution to existing shareholders, especially the latest investors from the Series H round. Given the context about ROBLOX’s fundraising bonanza, a direct listing makes much more sense, but might offer its own concerns. If private investors offload their shares aggressively, there could be a meaningful impact to the price depending on demand for the stock.

6. It is a strong candidate to be the next big meme stock

Even though the direct listing might offer an opportunity for existing investors to offload shares and leave retail holding the bag, the good news is that there might be enough demand baked in for this gaming giant. On the day of the IPO, $RBLX was the fourth most-discussed stock on the /r/WallStreetBets subreddit. $RBLX was then the second-most discussed on the subreddit the following day. The stock’s ticker trended briefly on Twitter as price discovery agitated scores of impatient investors. Meanwhile, the talking heads on CNBC asked everyone they interviewed about its potential to be a meme stock like GameStop. In support of its momentum meme stock potential, ARK Invest’s Cathie Wood bought millions worth of ROBLOX stock for their $ARKW portfolio. As of Thursday at the open, it comprises 0.5% of the $ARKW portfolio.

It is possible that ROBLOX could become a momentum stock on meme value alone given its long history, nostalgia among gamers and silly antics. After all, few investors will be buying the company because it’s a “good deal” at its current valuation. They’ll be buying it because of its potential, but also because of the fact that it’s somewhat ridiculous that you can now say “I’m a ROBLOX shareholder.” 

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Noah Weidner

Noah Weidner is a restless self-starter with a vehement interest in all things that make the world go around: culture, politics, economics and all the people in between. He writes the Bullish Rippers series and covers other interesting trends and happenings at Bullish.

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