Roblox: $24B Fueled by User-Created Content

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Good morning! It's Thursday, March 7th. Today, we’re breaking down Roblox and why BlackRock and Vanguard are among its largest shareholders!


Roblox: $24B Fueled by User-Created Content

The upcoming generation won't be simple digital natives, but metaverse natives, and that's all thanks to Roblox. 

Roblox saw massive growth during the pandemic as children flocked to the platform for its games and virtual social experiences.

This wasn't just some pandemic-fueled trend—Roblox is still super popular and generates $2.80 billion a year!

So, What's the Business?

For those over the age of 13, Roblox itself isn't a video game. Instead, it's an online platform that allows users to create and play games with one another. The result is a booming social platform that many mistakenly view as a simple gaming company. 

Roblox IPO'd in 2021, and its enterprise value currently sits at $24.12B. The company's shares have dropped more than 40% since its IPO. However, investment firms like SoMa Equity Partners (SoMa) are bullish on the gaming platform. 

Here's a breakdown of SoMa founder Gil Simon's investment thesis for Roblox: 

  • It's a 17-year-old company

  • 300M monthly users

  • 70M daily unique users 

  • Average playtime is 2 hours a day

  • Users are engaged at higher levels than on TikTok and YouTube

Simon believes that if Roblox takes its large built-in user base and leverages advertising like big social media platforms have, the company could see substantial revenue growth. Fortunately for Gil Simon, Roblox is investing heavily in layering advertising onto the platform. 

In fact, Roblox is pioneering a new advertising medium: immersive advertising. Through a partnership with Meta, Roblox is available on the Quest VR headsets, opening the door to virtual reality advertisements with new avenues for consumer engagement.

How They Win: An Endless Content Feed

Traditional video games have a short life cycle. Upon launch, they see massive sales that quickly decline as newer titles are released. 

Roblox founder David Baszucki circumvented this problem by equipping users to create an endless stream of new games and maintain Roblox's relevance. 

In addition to maintaining relevance, in-game purchases from user-created content are Roblox's largest money maker. 

Roblox supplies the infrastructure and tools for kids to make and sell their own games, turning their audience into what Forbes describes as "an army of apple-cheeked capitalists." In return, Roblox takes the lion's share of revenue from in-game purchases. For every dollar spent on Roblox games, creators receive approximately 30 cents. 

While Roblox certainly takes a hefty chunk, approximately 40% of game purchases go toward platform hosting costs and investments in developer tools. 

Those new developer tools include Roblox's AI chatbot, which helps users create virtual worlds faster. This AI chatbot can even create virtual environments from simple user-generated text prompts, making game creation highly accessible to non-coders.

For some people, creating games on Roblox isn't just their full-time job but how they got insanely rich. In 2022, Roblox's top 10 creators earned an average of $23M a piece. Those outside the top 10 still did well, with the top #100 creator earning $950k and the #1000 creator earning $60K. 

Key Observation

Roblox is far more than just a gaming company.

It's training the upcoming generation to navigate virtual reality communities and giving us a glimpse into how this tech may shape future social interactions. Be warned… your social interactions may include pop-up ads.

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