Investors are eagerly anticipating buying shares of Roblox, the video game platform company, when the company goes public through a direct listing on Wednesday, March 10. And some investors may be wondering how the company's current $29.5 billion valuation was determined and how it compares to Roblox's previous valuations.
If you're interested in a full breakdown of Roblox stock, Millennial Money has a detailed article about the company's upcoming direct listing, but we're going to talk here about how Roblox's valuation has increased dramatically in less than three years.
Image source: Roblox.
How Roblox's valuation got from $2.5 billion to $29.5 billion
In September 2018, Roblox raised $150 million through a Series F funding round, giving the company a $2.5 billion valuation. That figure was based on previous funding rounds, the total of which were $185 million at the time.
A valuation of $2.5 billion is very impressive, but just two years later the company closed another funding round -- this time for $150 million -- which valued it at $4 billion. Then, in January 2021, the company raised an additional $520 million, skyrocketing its valuation to more than $29.5 billion -- nearly 12 times higher than in 2018. Here's a chart showing the massive valuation jump since 2018.
Data source: TechCrunch. Chart by author.
To put this $29.5 billion valuation into context, consider that Salesforce paid $27.7 billion to buy Slack last year.
Of course, valuations don't exactly mean that a company should be worth that much, or that another company would pay that figure to acquire it. But with the massive funding rounds that Roblox has received, its current valuation does show that private and public markets have become very interested in this company. But why?
Why investors are homing in on Roblox
Roblox is receiving a lot of attention from investors because of the huge online gaming market and the company's ability to attract a large gaming audience. Some estimates project online gaming's market size to be $196 billion by next year.
Roblox is already tapping into this massive market with 32.6 million daily active users and 30.6 billion "hours engaged" by its users at the end of 2020. The company is also experiencing an influx of daily paying customers, which reached 490,000 in 2020, up from just 184,000 in 2019.
All of those paying customers helped Roblox generate $924 million in revenue in 2020, up 89% year over year. Additionally, the company's bookings reached $1.9 billion in 2020, with average bookings per daily active users (ABPDAU) of $57.77, up from $39.40 in 2019.
In short, Roblox's sales, bookings, daily active users, and engagement are all expanding rapidly. And with the company successfully tapping into the fast-growing online gaming market, private investors are willing to give Roblox a sky-high valuation. The big question for Roblox now is whether or not individual investors will flock to its stock when the company goes public next week.
