ONE PORTENT of a meme stock being born is when the company gets a pseudo-ticker on WallStreetBets, an online forum on Reddit. Roblox, an American video-game platform, has earned the tag $SEARS. Redditors aren’t mixing it up with a stodgy old department store. Roblox’s digital currency, Robux, sounds like Roebuck, of Sears Roebuck fame. Get it?
Roblox ticks other meme-stock boxes, too. The kids are into it, just as they were into GameStop, an ailing bricks-and-mortar gaming retailer whose share price soared earlier this year. Unlike GameStop, though, Roblox is all the rage with venture capitalists, Wall Street bankers and other supposedly hard-headed investors. The firm’s private valuation soared from $4bn at the start of last year to $29.5bn in January, when it raised $520m. It is so flush with cash that it has decided to go public via a direct listing, without drumming up fresh capital. As its shares debut on the New York Stock Exchange on March 10th its market value could rise further.
Roblox provides sophisticated software tools to young, amateur developers. Those creators—Roblox has 8m of them—produce multiplayer games for other youngsters. The company makes money by issuing Robux, which players buy with real dollars and spend on extras such as avatar outfits and accessories. It keeps some of the revenue but forks as much as 70% over to the developers in the hope of incentivising more and better content.
This, it hopes, will attract more players in need of more Robux. In 2020 Roblox’s developer community collectively earned $329m; 300 individuals brought in $100,000 or more. The approach has fostered loyalty among developers. Creators like Alex Balfanz, a student who made millions and paid his college fees with “Jailbreak”, a hit game, plans to create for Roblox for a decade or more.
Use of Roblox soared after covid-19 cancelled school and real-world playdates everywhere. The site now boasts 20m gaming “experiences” that draw 37m daily active users globally. Three in four American children aged 9-12 are on the platform, as is one in two British ten-year-olds. In Roblox’s last fiscal year users bought and spent $1.9bn worth of the currency.
Once the school gates open, as Roblox has warned, its rate of growth is likely to slow. By how much is anyone’s bet. Not that this will bother investors. Professionals like its growth story. Day-traders may like the meme-ness. Neither is much bothered about the company’s net losses, which swelled to $195m in the nine months to September 2020 as it invests in expansion. As a result, Bernstein, a broker, reckons that Roblox shares could fetch anywhere between $30 and $120 apiece when they start trading.
Long-term success will depend on attracting an older audience. Roblox has already penetrated the 8-15 age range. “Ageing up” is a priority for Roblox’s co-founder and boss, David Baszucki. So is lifting the quality of games. Roblox’s exciting game play has pulled in a massive audience but even ten-year-olds can tell that visual realism of many games is not up to the standard of professional studios. Still, Mr Balfanz argues that it will take just one big hit for Roblox to get traction with 20-somethings quickly.
Roblox holds interest for techies as well as investors. They want to see if the firm really is, as Mr Baszucki describes it, a shepherd for the “metaverse”, the idea of a persistent virtual world in which people meet, experience things together, make money and more. Futurists and techies have speculated about this possibility for years. The Roblox economy and its virtual music concerts, like one with Lil Nas X, a rapper, in November, could be a start. The firm may look like child’s play, says Herman Narula, co-founder of Improbable, a virtual-worlds company, but platforms like it may soon become “the primary way that many of us earn a living”. Perhaps. For the time being, it is likely to make tidy sums for its financial backers.
Source: Business - economist.com
