Video gaming company Roblox (RBLX -2.24%) recently went public, and to say that the company has a pretty rich valuation would be an understatement. But what about the company's growth and addressable market opportunity? In this Fool Live video clip, recorded on March 11, Fool.com contributor Brian Feroldi gives investors a rundown of the important financial statistics investors should keep in mind.
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Brian Feroldi: So, let's talk a little bit about Roblox's financial numbers. As you can imagine, the numbers have been trending in the right direction for the last couple of years, given what's happened to their daily average users and their monetization. In 2018, their revenue was about $325 million. In 2020, it was $924 million, so an enormous jump.
Now, they did have a huge uptick in fees and expenses across the board, and this is something that we saw with a lot of software companies last year. Engagement just went through the roof, demand just went through the roof, and the companies had to scramble to be able to support and fulfill that. Because of that, margins were under a little bit of pressure. We'll get into that on the next slide. But overall, the company's growth has been just fantastic, and they are really investing heavily back into their platform.
You can see that the cost of revenue went up a lot. They more than doubled their research and development expenses. Their infrastructure, and trust and safety category -- I love that they break that out -- the spending on that went up 150% over that time period. That is a major way that I think Roblox separates it from itself.
They are super serious about the trust, safety, and security, and because of their target market, which is again, kids under the age of 13, that is something that parents are, rightly so, very concerned about, such as myself. I do like knowing that's when they're on Roblox, that Roblox takes safety, security, and sharing extremely seriously.
Here's their numbers on a margin profile. As you can see, in 2018, their gross margin was about 78%. That dipped to about 74% in 2020. Again, that was mostly because of their ramped-up expenses, and because of their huge growth in their user to support their growth. Their margins also trended in the wrong direction on the developer exchange fees, but the rest of the numbers looked pretty good. I would expect that over time, once the 2020 hump is behind them, as their growth normalizes, they'll be able to refocus on their cost structure and improve these margins over time. But again, on a net income basis, they produced a net income loss of 27% last year.
Here is their breakdown by category. About 68% of total revenue in the United States and Canada. In international markets, the monetization is far, far lower rates than it is State side. Now, if you look back at their user numbers, their total user base is majority outside of the United States. That's a really big opportunity for this company, is to monetize its users in other countries at the same rate that it monetizes them in the U.S. Will it be able to do that? I don't know, but it's definitely a big opportunity for the company. This is the company's pro forma balance sheet, meaning as if they went public prior to this.
They did raise money in the private markets in 2020, and as of the end of December, they had about $1.4 billion in cash on the books, very little in the way of liability. They have plenty of cash available to them. This chart shows just how much free cash flow they've been generating. Again, while they produced a negative 27% loss on a net income basis. Last year, they produced $411 million in free cash flow. You're going to see that probably for quite some time, where this company, by the nature of the way that bookings work and that revenue works, is that net income is going to significantly lag free cash flow production. But this is one reason that they could afford to easily do a direct listing and not have to raise capital. Not only did they have $1.4 billion in cash, but they are pumping out free cash flow each year. This company is not capital constrained at the moment.
Their long-term growth trajectory is based on these four pillars. No. 1 is to continue to reinvest back into the platform to launch new products, such as virtual concerts, classrooms, allow conferences to be hosted on Roblox, allow meetings to take place on there. Will they be able to do that? I don't know, but I do know that on Fortnite, for example, Fortnite has had several concerts that have taken place on the platform and they've proven to be extremely popular with users. The same thing, I think could happen on Roblox. One of their other principles is to try and move up the age market.
Right now, the majority of the users are under the age 13. They think that there's room for them to grow in the 13 and above category. They're specifically calling out 17- to 24-year-olds. Will they be able to do that? I don't know. They did point out that their daily average users in that category grew faster than their core market did last year. Can they keep that going? I don't know because there is a component of once you become 13 or so, if you tell your friends you're on Roblox, it's less cool than being on, say, Epic Games. That might be a challenge for the company. We talked about before, they really are pushing hard to go boost their presence in international markets. Their affiliation with Tencent Holdings should not be overlooked. Tencent is the largest gaming company in the world with massive reach, so that should be an advantage for them. Finally, they really see numerous ways to increase their monetization efforts, both by allowing new developers to come on the platform to create new products, as well as creating partnerships to roll out new marketing products, such as they have partnership products with Warner, the WWE, Marvel, and NFL. Again, taking from my experience with Fortnite, I do know that when skins that come out that are NFL branded or Marvel branded, they really sell very well because people want to buy digital goods that they are accustomed to. That is another opportunity for the company.