Roblox was expected to go public before the end of the year. However, the company pulled its IPO, along with Affirm. Normally, a company pulls its IPO when market conditions deteriorate or it becomes concerned that there isn't enough demand for its shares.
IPO Moved to 2021
However, Roblox's decision seems to be based on the huge pops in the first day of trading for Airbnb (Nasdaq: ABNB) and DoorDash (NYSE: DASH). Both IPOs opened more than 100% from the prices they were set to open. This created a windfall for people who bought before the IPO and also likely indicates that the offering was mispriced and that the companies left money on the table.
Thus, some believe that Roblox will either pursue a "dutch auction" type IPO or go public through a reverse merger with a SPAC. Both of these paths would avoid such mispricing.
Company Profile
Roblox's S-1 reveals an impressive business by any metrics. However, the most staggering is that it has 31.1 million daily active users who spent a staggering 22.2 billion hours on its platform in the first nine months of the year.
Roblox is essentially a "metaverse" where users can explore, hang out with their friends, and converse with other users. They can also play games in this metaverse or create games for other users. Many developers solely focus on creating games for Roblox and are earning six or seven figures.
In the first three quarters of the year, the company generated $589 million in revenue which was a sharp increase from 2019's $350 million over the same period.
Roblox was founded in 2004 by Eric Cassel and David Basczuki. Initially, they had built a physics tool to simulate different experiments which became quite popular. Roblox was the next iteration of this but centered on helping people interact in a new medium.
Roblox has 7 million developers. In some sense, these are the most important asset for the company as they are building the 3D worlds that users are interacting with.
Stock Price Outlook
Roblox shares many similarities with successful stocks and companies of the past decade. Unity Technologies (NYSE: U) is similar in that it has a game-creation engine which it offers to developers for free. Incentives are aligned between developers and Unity just like it is for Roblox.
Additionally, video gaming is booming. Already, it was a powerful secular trend as time spent on video games is exceeding that of nearly every medium including social media, movies, TV, etc. Now, the biggest video game releases generate more money than blockbuster movies. The coronavirus and lockdowns were a cyclical boost to this trend as people had more time and video game sales boomed.
Video game monetization is also in its early stages. Revenue per user based on time spent remains quite low for video games, but companies are getting better at monetization. The past decade has shown that if a company can build a platform and attract users, eventually it can figure out how to monetize.