Roblox Corporation, a U.S. video game company, has reportedly filed to go public after months of speculation. Reuters reported on Monday that Roblox confidentially submitted to go public with the SEC, and that the company would be aiming at a valuation of about $8 billion.
As Roblox filed confidentially, it is too early to do a formal analysis of the company and whether this will be a good buy. But an early look at the data we do have as well as wider market conditions indicate that this is a good time for this company to go public.
Video Game Popularity
Roblox is a video game sandbox platform that is somewhat comparable to Minecraft, especially in how both are extremely popular among young children. With the Roblox platform, even young beginner platforms can create their own games which they can share with their friends. At the same time, there are games like “Adopt Me!” and “Jailbreak” which have been played billions of times and are some of Roblox’s biggest draws.
As of July 29, Roblox had over 150 million active users, compared to 126 million active users for Minecraft. The company is also paying off for community developers, who are on pace to earn $250 million in 2020.
Roblox’s simple, Lego-like system works well for developers who are leery of the costs of developing triple-A games for companies like Microsoft (NASDAQ:MSFT) or Nintendo or who are otherwise brand-new to developing. Roblox does not pay developers to create games like those large corporations. But even new developers can make it big if they develop the right, simple game. Roblox operates on a freemium basis where most active users play for free, but have the option to pay “Robux” which is split between the developer and Roblox.
Roblox offers a system that works well for developers and consumers, and it is choosing a terrific time to go public as well. The gaming industry is one of the few sectors which has performed well during the coronavirus outbreak, as people stuck at home have turned to games for entertainment. Unity Software Inc (NYSE:U), another software company that offers a platform for developers, has seen its share price rise by 31.6% since debuting last month.
A final note on this IPO is that there is some speculation that Roblox could go for a direct listing instead of a traditional IPO. Direct listings have become increasingly popular over the past few years. Instead of issuing new shares, companies allow existing shareholders to sell their shares. The company does not raise any money directly in a direct listing, they do not have to pay any fees to a bank to help manage the IPO and the shareholders do not have their shares diluted.
A Very Interesting IPO
As noted above, with a lack of financial information as well as what valuation and price Roblox ill be aiming for, it is impossible to definitively state whether Roblox will be a good buy or not. But what we do know is that this is a company which appears to be growing rapidly in a profitable market which is doing well especially due to the coronavirus.
When the company reveals its SEC information to the public, key numbers to look out for are exactly how much Roblox is growing, as well as whether it is profitable already or not. Most tech IPOs are not, so it would be an impressive accomplishment if Roblox was an exception to that rule.
Roblox is not going to be a safe investment in the same way that investing in land is. But it is a highly interesting company with strong potential. Investors should continue to keep an eye out and wait for more information.