The metaverse is here: Roblox IPO is big news for creators

The social gaming platform Roblox (NYSE: RBLX) is now at a $38 billion valuation after its March 10 debut as its stock soared 54 percent on opening day.

Investors’ warm reception places Roblox among the world’s most valuable gaming companies alongside household names like Electronic Arts ($37.6 billion market cap) and Nintendo ($65.5 billion).

Roblox 101: Roblox’s mission is to create the “metaverse” — a collective, virtual shared space in which users explore, build, and socialize in 3D digital worlds. Users create avatars and navigate virtual communities with such games as “Natural Disaster Survival,” “Work at a Pizza Place,” and “Scuba Diving at Quill Lake.” Its most popular games are Adopt Me! (20.3 billion visits), Tower of Hell (10.2 billion), and MeepCity (9.3 billion).

How it makes money: Roblox generates most of its revenue via the sale of its digital currency or “Robux,” which allows users to buy in-game objects and upgrades. You can get 400 Robux for $5 USD, though promotional and bulk discounts are common.

Built for, by builders: Roblox Studio allows developers and creators to build, publish, operate, and generate revenue from 3D experiences and other content. Founded in 2004 in San Mateo, Calif., the platform is free to download on phones, tablets, and consoles.

Covid supercharged: While it was already quickly expanding, the pandemic poured gasoline on Roblox’s growth. Roblox’s 2020 revenue of nearly $925 million is up 82 percent from 2019 and the company now expects sales to rise about another 60 percent in 2021. To end 2020, Roblox had 32.6 million daily active users — many of them young people under 16-years-old — and expects up to 36.4 million active users by the end of 2021. In total, there are more than 150 million Roblox users.

“We headed into 2020 with strong organic growth which was further bolstered by social distancing restrictions. As those restrictions ease, we expect the rates of growth in 2021 will be well below the rates in 2020, however, we believe we will see absolute growth in most of our core metrics for the full year.” —Roblox CFO Michael Guthrie

Creators rejoice: Developers have the opportunity to make serious cash by creating games and experiences on Roblox. About 1.7 million creators are earning revenue on the platform, and Roblox expects to pay its users more than $250 million in 2020. Users can earn as much as $1 million in a year.

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Revenue sharing impact: Is Roblox paying their users too much? Roblox’s net loss grew to $253.3 million in 2020 — up from $71 million in 2019 losses — as Roblox nearly tripled the amount it paid to developers. While wide losses seem to be a staple among burgeoning tech companies, it shouldn’t be an immediate issue for Roblox. The company recently raised $520 million in a Series H round led by Altimeter Capital and Dragoneer Investment Group.

“The accomplishments of our developer community have eclipsed even our loftiest expectations; I am incredibly impressed by the unique and creative experiences being introduced on the Roblox platform. Our focus is to give developers the tools and resources they need to pursue their vision and create larger, more complex, more realistic experiences and collectively build the Metaverse.” —Roblox CEO David Baszucki

A young demographic: The platform is wildly popular with younger people that have been out of school and at home during the pandemic. Remarkably, over 50 percent of U.S. kids under age 16 played Roblox in 2020. That youthful adoration of the platform could spell trouble for Roblox, the company admitted. In a filing with the Securities and Exchange Commission, Roblox said its young user base will lead to more scrutiny of the platform and potentially calls for more regulation.

Fueling creators: Nearly anyone, regardless of their technical experience, can build on Roblox. Roblox Studio teaches users how to code and create games for its platform, and the Roblox Developer 101 course is used by educators around the world. The company also offers an accelerator program that mentors more than 100 developers per year. That foundation should help Roblox to become yet another powerful platform for the creator economy to leverage.

The metaverse vision: Roblox expects to generate “billions of users” as it evolves to become a platform of “human co-experience,” in which Robloxers can play, find entertainment, learn, and work. Roblox CEO David Baszucki said that the platform’s ability to host such offerings as concerts, virtual classes, and meetings will dramatically boost to company’s market. Baszucki is worth a cool $4.6 billion after Roblox went public.