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Should You Buy Roblox Stock?

By Matthew Frankel, CFP® and Brian Feroldi - Mar 28, 2021 at 7:11AM

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Here is an overview of what this recent tech IPO does and how fast it's growing.

Roblox (RBLX -8.01%) went public in early March and has performed quite well since. However, many investors who don't use Roblox's gaming platform aren't too familiar with the business. In this Fool Live video clip, recorded on March 11, Fool.com contributor Brian Feroldi gives a rundown of Roblox's business and the key figures investors should know.

Brian Feroldi: So, what is Roblox? Well, here's how they describe it. It's a global platform where millions of people gather every day to create experiences and share 3D generated worlds with each other. It's essentially a metaverse. If you don't know what that is, if you've ever seen Ready Player One, when they go into the Oasis, the Oasis is a metaverse. People go in and they can do adventures with each other, they can communicate with each other, they can play games with each other, that is what Roblox is.

Their mission is to build a human co-experienced platform, co-experienced meaning metaverse, that enables billions of people to share experience with each other. Here is a little bit about their founding in history. The company was created in 2000. The two co-founders have been together creating 3D simulated software programs since 1989. They've been at this for a long time. Roblox the platform was officially launched in 2006, and over time, they've just grown and added on the new platform. They were on iOS in 2011, Android in 2014, Xbox in 2015, they did partnerships with Tencent in 2019, which is the largest gaming company in the world.

As of last year, fiscal year 2020, they did $1.9 billion in bookings. Now, bookings are different than revenue, that's something unique to the video game industry. Bookings is when a user puts money onto the platform, but the company cannot record it as revenue yet, it has to be spent on the platform. Thinking about the same way you would buy a gift card. If I buy a $25 gift card from Starbucks, Starbucks can't record $25 in revenue. They can record it in bookings but it's not revenue until i spend it and buy the coffee. Same thing with Roblox.

There are three main components to the Roblox platform. There's the client, they're called the Roblox Client, which is a free application that users can download and it's how they experience the world. There's also Roblox Studio, which is a set of toolkits that developers can use to build their own games inside the Roblox universe. Then there's also a cloud component to them. They provide all the infrastructure that hosts and gets everything out there. Roblox is currently available basically on any console you can think of. They've also made investments to put it on Oculus. There's a VR, an augmented reality component to this company, although the majority of current users are on mobile and on operating systems.

It is a free game to download, users can download the game for free and connect with their friends for free. It's monetized when people take real money and they spend it in the platform to buy Robux, that is the virtual currency inside Roblox. Users spend those Robux on digital goods. It's a freemium business model that is extremely successful and companies like Epic Games use it on Fortnite, for example. Every time money is spent on the platform, the developer that created that digital good or the game that the Robux is spent, they collect about 70% of the Robux, and Roblox itself keeps 30% for itself, which is a pretty standard breakdown that's available on, say, like the Apple Store or the Google Play Store. That is the business model here.

The company's growth has been fantastic since 2004. As you can imagine, 2020 was a banner year for the company and all the companies metrics just skyrocketed. The growth was pretty strong prior to 2020, but they just really took off during the middle of the year. They currently have 37 million daily active users that was up substantially over the prior year. The number of hours that are played on the platform has gone nowhere but up, although total engagement has actually leveled off over the last couple of quarters. Then this is the average daily bookings per user. It's been pretty steady growth. Even as the company has brought in more users to its platform, it's done actually a good job of monetizing them at a higher and higher rate over time.

Here's a quick look at some of the statistics for each user. It's about half male, half female. Seventy percent-plus access the platform on mobile consoles. The geography is split pretty well across the world, and about 60% of users are under the age of 16, and about a third are over the age of 17. It does skew younger. Here are the key numbers from the IPO for 2020. So $1.9 billion in bookings, but little less than half of that was actually booked as revenues. You can see people really put a whole bunch of money into the platform last year. They did produce a net loss of $253 million. But as you can tell, there's a huge difference between bookings and revenue. Roblox is receiving that cash upfront before they can count it as revenue. There's a wide gap here between net income and cash flow. On a cash flow basis, Roblox is raking it in. On a net income basis, they are technically losing money there. That's Roblox, an overview.

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