Denice R. Preston
Roblox Corp. is an online gaming firm that doesn’t have a prior history of blockbuster games and whose largest market is the preteens. But, after its IPO in March, its value was surpassed by the industry’s most renowned Electronic Arts Inc. So, what’s the secret to its achievement?
In the absence of children, There’s a good chance you’ve not heard of Roblox, the free online gaming platform that’s best known because of its evocative Lego graphics if you’re an investor likely to be paying attention right now.
Roblox Corporation, founded in 2004, was listed on the market on March 10 and listed stock at the New York Stock Exchange at the opening price of $64.50, which translates into an estimated worth of $42 billion. This represented a greater than tenfold increase in its value since it was founded in February 2020, pushing it above some significant players in the market, including Electronic Arts Inc., famous for its sports titles such as FIFA and Take-Two Interactive, which controls Grand Theft Auto.
It’s not bad for a company with no experience with blockbuster movies and whose primary market is the preteens. The high price reflected Roblox’s business strategy, which is as focused on entertainment as providing a rich social experience and the demand for online games. In short, the gaming industry is hot, and the COVID-19 epidemic is growing faster than the market, and it has helped drive technological change in the world economy.
Strong Tailwinds
“Video gaming has a lot of strong tailwinds,” says Jimmy Stone, an expert in finance on the Toptal network since 2018 and managing partner of financial consultant company Alderbrook Companies LLC. “Not a lot of large industries are growing that quickly, and it checks a lot of the investment theme boxes from the pandemic.”
The growth of mobile connectivity as well as the proliferation of games that are free to play, have driven the expansion of the gaming business for more than ten years, making it larger than movies and music, in the words of Stone. After the closure of schools and offices last year to prevent transmission of the virus, gaming spending worldwide, which includes consoles and mobile, has increased by around 20% throughout, 2019according to the companies that track the market for games Newzoo and is in the position of reaching $218 billion by 2023.
Investors have noticed. A popular market proxy that is popular market proxy that is the VanEck Vectors Video Gaming and eSports ETF returned around 95% during the year, which ended in February. 28. It differs from an increase of around 57% in the tech-rich Nasdaq 100 in the same period. The latter represents an even more comprehensive range of companies that benefited from the spread of the virus.
Roblox’s launch also crowned it as a COVID-19 winner, a market that is dominated by tech firms like Zoom Video Communications Inc. that saw their usage rise and prices rise when employees from all over the world were forced to return home to work remotely during massive lockdowns. The company put its stock at the NYSE instead of raising capital via its initial public offering. This trend is becoming increasingly popular with tech firms that could reduce costs and increase the profits of investment banks.
Users, Revenue Surging
The number of daily active users on the platform grew by 85 percent, up to 32.6 million in 2020, up from the previous year. Revenue, fueled by tiny purchases referred to as microtransactions made by game players, increased by 82 percent in the year to $924 million. This company is projecting an increase in revenue that will continue to grow into 2021, though with a lower rate of about 60% year-over-year.
Its net loss grew during the same time it attempted to keep pace with the increase, averaging $253 million, but this did not seem to frighten investors.
“It’s not just a video game company, and it’s not a studio; it’s a platform,” says Zachary Elfman, a former hedge fund analyst and Toptal financial expert from the year 2017. “They’re very well positioned for growth going forward.”
Gaming has always been about new titles and the most recent graphics. However, the industry nowadays focuses on its offerings’ social aspects. The players don’t only play games with friends on the internet. A survey carried out last year by the research and polling company Nielsen discovered that nearly one-in-four US citizens were playing video games to keep in contact with family and friends. This trend was facilitated because of the increasing popularity and growth of multiplayer games like Minecraft or Overwatch.
Nielsen also revealed in its research that although people were sedentary this year, they spent much more time playing mobile games and saw the use of mobile games increase faster than consoles such as PlayStation PlayStation and Microsoft’s Xbox and personal computers. This is an additional benefit for a device-independent firm like Roblox that has stayed clear of the hardware market and earns over half of its revenue from microtransactions made via its mobile version of the game.
Behold the Metaverse
Since its beginning, Roblox has envisioned a rich social network for its members, which it calls the metaverse. It’s similar to the one featured in “Ready Player One.” Like the movie, Roblox users exist as avatars on the platform, and they can navigate the millions of gaming experiences available to them using the same avatar. Additionally, they can participate in virtual gatherings like in November, when the rapper Lil Nas X was transformed into Roblox-style images on the platform, where they performed a concert that attracted more than 33 million viewers.
The platform has made it simple for users to build their games. It offers an easy set of steps in addition to advanced development. This is one of the main reasons that more than half of users on Roblox are younger than 13 years old. It’s also why millions of games are available on the platform. Roblox made it enjoyable for children to create these games.
