Roblox (RBLX 0.39%) has recently looked to expand monetization opportunities. The company, which primarily caters to the younger generation, thrived at the pandemic's onset when millions of kids were sent home for remote learning. As economies are reopening, kids are returning to school, and extracurricular activities are restarting, leaving less time for kids to interact with Roblox.
Management thought this to be a prudent time to develop under-monetized opportunities. Let's look closer at what that could mean for investors.
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Roblox is tapping additional sources of revenue
Interestingly, as of its first quarter, which ended March 31, Roblox had 11.7 million average monthly paying players. The distinction is vital because Roblox is free to join and use. It makes money by selling an in-game currency called Robux, which is required for premium experiences unavailable to free players. Those who do make a deposit are considered paying players.
Overall, Roblox boasted 54.1 million daily active users. The difference between payers and daily active users is an untapped opportunity for Roblox. Further, it can be reasonably assumed that Roblox has a much larger base of players who perhaps log on once every week or every month. That highlights a significant opportunity for Roblox to monetize.
RBLX Revenue (Quarterly YoY Growth) data by YCharts
One method that management is considering implementing is sponsored search results. Roblox does not create premium content on its platform. Instead, it outsources this to third-party developers, who earn a percentage of the revenue their creations generate. Therefore, developers would be highly interested in promoting their particular games on the platform and willing to pay to do so.
Here's what management had to say on the initiative in its first-quarter shareholder letter:
The system currently under development will allow creators to predictably bid for impressions or visits. For new developers who are launching an experience, this will help kick-start traffic as these new developers try to get to critical mass.
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Key Data Points
Additionally, Roblox intends to add advertising opportunities in more areas on the platform. Management continued:
Beyond sponsored ads, we are at the beginning stages of developing native and immersive advertising in the Roblox metaverse. We envision several new advertising units that we imagine as being complementary to our user experience. These ad units will include ways for brands and developers to bring traffic to their experience, as well as ways for brands to dynamically become part of experiences.
The ad revenue would go a long way toward supplementing sales derived from Robux. It will also ensure a broader base of monetized users. As it is, only players who deposit funds earn money for Roblox. With advertising, even free money players become valuable. Demand from marketers could be robust, as Roblox's large, growing user base is young and influenceable.
RBLX Revenue (Annual) data by YCharts
What this could mean for Roblox investors
Roblox has managed to expand revenue from $508 million in 2019 to $1.9 billion in 2021, strictly from the sale of Robux. Adding the extra ad revenue could supercharge revenue growth over the next several years. Of course, this is still speculation because Roblox has yet to implement the feature, and investors have yet to see results reflected in financial statements. Still, unlocking these growth opportunities could be lucrative for today's investors.
