Roblox stock (NYSE:RBLX) has risen to popularity in the investor community after the gaming platform company went public on the New York Stock Exchange earlier this year. Roblox entered the US stock market via a direct listing, closing its first day on Wallstreet with a diluted value of $45.3 Billion. The success of its listing sparked strong investor interest, which continues to drive the share price higher.
However, its direct listing was not the only success that has attracted investors to Roblox stock. In the first half of the calendar year, Roblox have reported revenue exceeding $840 Million, more than doubling its previous first half year performance. The companies success over the past 15 years can be attributed to its ingenious business model. Whereby the company monetises its platform via virtual currency. This ensures the platform can be accessed for free. Furthermore, the platform relies upon its users to create content or mini games. For example, Roblox users/developers have created “Squid Game” spinoffs that have attracted users from across the globe. With that being said, this article will explore Roblox stock and its recent success in attracting millions of users daily.
How much does Roblox make off its platform?
Roblox was one of the many tech firms to benefit from the COVID-19 pandemic. Roblox saw its daily active users (DAU) grow by 80% in 2020 alone. So how much money did it make off the pandemic? In 2020, the company generated $990 Million which beat its previous year by 111%. These growth rates were not unprecedented across the tech sector, with Netflix generating $24.9 Billion (24% YOY improvement) in the same year. However, Roblox has a unique business model in comparison to other gaming companies including Activision who charge on a per game basis.
Roblox currently hosts tens of millions of games developed by its users, which can be accessed by users for free. Roblox has a developer exchange program, whereby eligible developers can make a 25% split on the games earnings. The 25% split of earnings to its developers takes into account the “server space, marketplace infrastructure and cross-platform capability” that Roblox offers its developers. For comparison, Apple currently takes a 30% cut of App developer revenue however its recent battle with Fortnite may see Apple’s margin lowered even further.
Roblox benefits off Squid Game success
Last week, we covered the Squid Game trend and its effect on the Netflix stock price. However, Netflix may not be the only ones benefiting from the viral trend. On the Roblox server, one of the more popular Squid Game spinoff’s has received over 217 Million visits worldwide. Another “Squid Game” mini game has received over 60 Million visits and has only been live for 4 weeks.
Now you may be asking, when will investors see the strong monetisation rewards resulting from its popularity. In November, Roblox will report its third quarter earnings which reports revenue up to September 30. However, the mini games popularity peaked earlier this month as the mini games gained traction on YouTube and Twitch. Investors may not see the extent of this trend and the additional users it has brought in until the fourth quarter earnings. Nevertheless, this trend does highlight the dynamic nature of the companies platform.
However, it is worth noting some people have questioned if the “Squid Game” franchise can claim copyright on Roblox. The company has entered some legal battles in the past including a lawsuit with the makers of the popular horror game “Resident Evil”. The reality is that many large scale gaming platforms such as GTA, Fornite and Minecraft have user generated mods and mini games that are adaptions of trends such as Squid Game. At current, Roblox employs anti-piracy and moderation tactics to combat developer content that violate their terms of service.
Wallstreet analyst sees 13% upside in Roblox stock
Wallstreet analyst Andrew Uerkwitz from Jeffries recently lowered the firms Roblox price target to $86, still representing a 13% upside from the current trading price. The analyst noted the company continues to grow their daily active user numbers however its monetisation is lagging. The analyst lowered his booking estimates by 2% for the FY 2021 after the release of Roblox’s August DAU numbers. However, Uerkwitz noted earlier this year that Roblox’s business model is “incentivizing developers and players to remain in the ecosystem” according to theFly.
Overall, the recent “Squid Game” trend highlights Roblox’s dynamic business model and the extent of this trends success on the platform will be more clear in the upcoming quarterly results. We will continue to update our viewers on Roblox stock as the company nears its investors day presentation next month.
The information above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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