Roblox: A game worth playing for the long term

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If you haven't heard of Roblox, you're probably old enough to drive and don't have kids. Roblox stock soared after it direct-listed its shares earlier this month. Since debuting on the NYSE, its shares have been strong, hovering around the $68 range.

The backstory: Roblox is a free platform that allows players to create their own mini games, publish them to its marketplace (yes, monetize) and play with friends and family. It has over 8 million developers and average daily users of 37 million, according to Reuters. And most importantly, kids love it and it's been minting money:
  • More than half of Roblox's 199 million monthly active users are under the age of 13.
  • Roblox generated $923.9 million in revenue last year, primarily through the sale of virtual in-game currency called “Robux.” It takes a cut of the money that players spend on user-generated game upgrades. And although it has yet to turn a profit, the company expects to rake in between $1.44 billion and $1.52 billion in 2021 revenue.
Stock forecast: Roblox growth has certainly been aided by the pandemic as the global lockdown increased its target tween playing group. However, it won't slow down post pandemic. Per its most recent outlook for Q1 2021, it aims to grow daily active users by over 60% and revenue by over 100% YoY. If achieved, these figures will be very impressive.  

Many analysts compare Roblox to companies in the video gaming industry to argue that it is trading at a very high valuation. In my opinion, these comparisons miss the point. Roblox isn’t a game at all: it is world in which one of the things you can do is play games, with a persistent identity, persistent set of friends, persistent money, all disconnected from the device that you use to access the world. Tell me about a video game that can do that. 

Bottom line: I'm very bullish about Roblox and I think there is an element of how Facebook developed in Roblox's story. Growth at Roblox has been driven primarily by a significant investment in technology - the microservices powering developers to develop, family and friends to socialize etc-, and two mutually reinforcing network effects that will make Roblox so phenomenal: content and social. The more users and developers join Roblox, the deeper its moat becomes. That’s the thing about social networks: their best feature is whether or not your friends are on it.

Roblox's savvy management and growing user and developer base means that it will able to respond quickly to shifts in user behavior. This means it will be able to identify and capitalize on new revenue generation ideas. We are likely only at the infancy of the whole monetization of social gaming platforms, and Roblox is the biggest if not the only game in town. 

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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