Roblox Tops $45 Billion on First Day of Trading as Gaming Booms

When the pandemic forced people indoors a year ago, many spent the time playing games on their iPhones, building gaming computers, and exploring the latest blockbuster titles on their Xbox and PlayStation consoles.

This meant a lot of money for video game companies. A record $ 56.9 billion was spent on gambling in the US last year, up 27 percent from 2019, according to the NPD Group. Sony, which released the PlayStation 5 in November, recently reported a 62 percent jump in profits , while Microsoft had its first quarterly gaming revenue of $ 5 billion, backed by sales of its new Xbox devices.

On Wednesday, the booming effect of the pandemic on gaming became even more apparent when Roblox, a child-focused gaming platform, went public.

The Silicon Valley company closed its first day of trading at $ 69.50 per share, up from a reference price set on Tuesday of $ 45. Roblox was valued at $ 45 billion, down from $ 4 billion a little over a year ago. The company went public on a direct listing with no new shares issued.

“The games industry is swimming in cash,” said Joost van Dreunen, professor at New York University who studies video games. “It’s only raining money for these people, for these companies.”

Roblox’s performance was another sign of an increasingly hot public offerings market. When Airbnb and DoorDash went public last year, their stock prices soared immediately, raising questions about whether there was a new stock market bubble. Investor demand for fast-growing young companies was so far off the charts that Roblox decided to postpone the listing in December as it was too difficult to accurately value its stocks.

This hype was compounded for Roblox by the euphoria about video games in general. Aside from the new game consoles from Microsoft and Sony last year, mobile games like Among Us became an internet phenomenon essentially overnight. Video game manufacturers like Take-Two Interactive and Electronic Arts have tried to outbid each other to buy out smaller competitors. And hundreds of gaming startups have sprung up during the pandemic, said Evan Van Zelfden, managing director of Games One, a consulting firm.

“It seems like there’s a new start-up almost every day,” he said. “Everyone wants to be the next Roblox.”

But how long this frenzy can last is increasingly being questioned. With the introduction of vaccinations and the easing of pandemic restrictions in some places, gaming behavior may gradually change. Investors don’t think about what will happen when the pandemic subsides, van Dreunen said.

“There will be a lot less time to play Roblox,” he said.

David Baszucki, CEO and founder of Roblox, said in an interview on Wednesday that he didn’t expect the platform players to bleed if the pandemic ended and the kids were back playing outside with friends.

“We don’t think we’re going to lose all of this or all of the amazing people we’ve gathered,” he said. His shares in the company were valued at approximately $ 5.5 billion at the end of trading.

Roblox was founded in 2004 by engineers and entrepreneurs Baszucki and Erik Cassel. (Mr. Cassel died of cancer in 2013.)

The website, which was launched in 2006, is an online universe where players can interact and choose from more than 20 million unique games. With their avatars they can then break out of prison, explore tropical jungles or adopt pets, among other things. Players pay for premium memberships as well as items and clothing for their avatars using a digital currency called Robux.

Roblox became increasingly popular with younger viewers for years. That growth was turbo-charged by the pandemic last year. An average of 32.6 million people a day signed up for Roblox, almost twice as many as in 2019 (17.6 million). While Roblox is unprofitable, its sales jumped 82 percent to $ 924 million last year.

Over the years, Roblox raised $ 871 million in funding. The largest investors include Altos Ventures, Index Ventures and Meritech Capital Partners.

Roblox has also enriched many developers who make its games and digital accessories and share their profits 50-50 with the company. Those who develop the most popular Roblox games can make six-figure salaries. Many of the developers are teenagers and young adults who grew up on the platform.

A developer, Anne Shoemaker, 21, said she made more than $ 500,000 from the platform, most of it since the pandemic began. She used some of the money to hire two employees and a dozen contractors, she said.

The success that was triggered by a pandemic was “the impetus I needed to make Roblox my full-time job”.

After Roblox postponed its listing in December, it was scheduled to go public in January. However, that date was postponed after the Securities and Exchange Commission asked the company to change the way it calculated its earnings. Roblox has since followed suit.

At an investor event last month, Craig Donato, the company’s chief business officer, said Roblox was trying to add more users, mostly by targeting the international audience and older gamers. The company is also working on more sophisticated graphics, more complex games, and increasingly lifelike avatars, he said.

The ultimate goal, according to the company, is to create a “metaverse,” a concept primarily reserved for science fiction that describes a shared online universe in which people can live and interact as if they were there in person. Roblox holds business meetings on the platform and has promoted virtual concerts in its universe.

On Wednesday, Roblox employees also gathered their avatars on a digital version of the New York Stock Exchange to celebrate the listing.

“Just as the mail, telegraph, telephone, text and video are collaboration utilities, we believe Roblox and Metaverse will complement these as essential tools for business communication,” Baszucki said during the investor day. “Ultimately, one day we might even go shopping at Roblox.”

But before the metaverse can happen, Roblox needs to navigate what to do when the pandemic subsides.

“Much of the revenue trend in 2020 was Covid-related, particularly in the US,” said David Gibson, chief investment officer at Astris Advisory, a Tokyo-based financial advisory firm. But he said he was wondering how long that would take.

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