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Roblox's metaverse bet key for company's success as public entity – analysts

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Analysts say Roblox's cartoonish appearance appeals to younger users.
Source: Roblox

Though tween-centric Roblox Corp. has surged in popularity amid the pandemic, analysts are confident the gaming site is more than just a passing fad.

After postponing its direct listing late last year amid regulatory pressures, Roblox on March 10 hit the public markets with gusto, opening 43% above its reference price to close trading at $69.50 for a fully diluted market value of about $45 billion. Roblox, an online videogame platform where users can develop and play games, has seen its usage skyrocket in recent months — particularly among younger users — as COVID-19 shuttered schools and halted regular activities worldwide.

With the pandemic far from over, analysts say Roblox's ability to create a 3D virtual community that connects users over shared interests could soon usher in a new era of how people and work and play.

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Founded in 2004, Roblox is a free online platform available on computers, consoles and mobile devices. It offers millions of multiplayer games created by developers, from obstacle courses to adopting and trading virtual pets. Roblox said it generates the bulk of its revenue through sales of Robux, a virtual currency that players can buy with real money to acquire virtual goods on the platform.

"It's playful and cartoony," said Ian Hughes, a senior research analyst at 451 Research, part of S&P Global Market Intelligence, speaking of the reasons behind Roblox's younger-user appeal. "It's got that kind of quirky, kind of handmade feel to it. That's what kids do when they play in the nondigital space."

SNL ImageRoblox began trading March 10, 2021, under the symbol RBLX on the NYSE.
Source: Amazon Appstore

For the year ended Dec. 31, 2020, Roblox's daily active users, or DAUs, surged 85% year over year to 32.6 million, with hours spent on the platform skyrocketing 124% to 30.6 billion, according to a recent regulatory filing. Roblox said the majority of its users are under the age of 13, though noted its 17-to-24-year-old age group grew faster than its core age group in 2020.

"We ultimately aim to be a brand that serves all ages," the company said. Roblox has said it seeks to develop more live experiences available on the platform, including virtual concerts, classrooms, meetings and conferences.

A central theme to Roblox's strategy is the idea of building out the metaverse, or a virtual reality space in which users can interact with a computer-generated environment and other users. In a recent Wired article, Roblox founder and CEO David Baszucki compared the metaverse to the advent of the telephone and internet, predicting it will enable things like wide-scale networking events and the re-creation of familiar physical locations.

"Perhaps the greatest opportunity it presents is to bring together people from all walks of life and foster a civil digital society," Baszucki wrote. "In 2021, that new society will begin to emerge for real."

Doug Clinton, managing partner at venture capital firm Loup Ventures, called Roblox's metaverse strategy a smart one that could give the firm a competitive edge in an increasingly crowded gaming market.

"Roblox shows that if you have a great platform, a really strong product, that there's still good consumer demand for those kinds of companies," Clinton said in an interview.

In terms of financials, Roblox in 2020 grew its total revenue to $923.9 million, up from $508.4 million in 2019. However, net losses widened to $257.7 million in 2020, compared to a net loss of $71.1 million the year prior. The company said it has never been profitable since its inception and warned that its costs and expenses could continue to rise in the future amid its efforts to grow the business.

Wall Street so far seems unconcerned with the company's lack of profitability.

Stifel analyst Drew Crum on March 16 initiated coverage of Roblox with a "buy" rating and price target of $85. The analyst said he is optimistic about Roblox's focus on user-generated content and the community aspect of the platform, which he said should pay dividends for the company going forward.

"We believe Roblox represents a compelling play on the convergence of content and social, two 'viral loops' that provide a mutually reinforcing network effect, and together should drive higher engagement, and hence monetization across its platform," Crum wrote in a report.