$RBLX - Roblox Observations & thoughts
Been through the prospectus & IR materials
Bottom line - exciting, not cheap, worth studying further
Popular platform for games & interaction for kids but extending to wider age group & other use cases -> metaverse
A thread...
1/n
Been through the prospectus & IR materials
Bottom line - exciting, not cheap, worth studying further
Popular platform for games & interaction for kids but extending to wider age group & other use cases -> metaverse
A thread...
1/n
2
Disclaimer
I'm not an expert in the gaming industry & the metaverse
These are my general thoughts & observations after looking at $RBLX
I find it very interesting
Disclaimer
I'm not an expert in the gaming industry & the metaverse
These are my general thoughts & observations after looking at $RBLX
I find it very interesting
3
They're a platform - outsource game dev to 3rd party devs
Roblox app is free to dnload. They make money by users buying the Robux digital currency & spending on in-game experiences & items in the avatar mktplace
Devs & creators keep a % of Robux & can convert back to $
They're a platform - outsource game dev to 3rd party devs
Roblox app is free to dnload. They make money by users buying the Robux digital currency & spending on in-game experiences & items in the avatar mktplace
Devs & creators keep a % of Robux & can convert back to $
4 - How does the money flow?
Assume an App Store purchase of 800 Robux for $9.99. Call it $10.
- Conv rate to go in : 0.00125
- buy experiences from dev
- dev keeps 70% ie 560 Robux
- Dev converts back to $ at 0.0035 (set by Roblox)
- dev gets $1.96
Assume an App Store purchase of 800 Robux for $9.99. Call it $10.
- Conv rate to go in : 0.00125
- buy experiences from dev
- dev keeps 70% ie 560 Robux
- Dev converts back to $ at 0.0035 (set by Roblox)
- dev gets $1.96
5
If user buys an item in the Avatar mktplace, the creator only keeps 30%
Apple gets their 30% share
So for a dev experience transaction:
- $10 goes in (Bookings)
- Apple gets $3 (Cost of Revenue)
- Dev gets out ~$2 (~20%) (Dev Exch Fees)
- Roblox ends up with $5
If user buys an item in the Avatar mktplace, the creator only keeps 30%
Apple gets their 30% share
So for a dev experience transaction:
- $10 goes in (Bookings)
- Apple gets $3 (Cost of Revenue)
- Dev gets out ~$2 (~20%) (Dev Exch Fees)
- Roblox ends up with $5
6
Dev experiences are ~70% of the mix
So blended, the dev exch fees should be about 16% (remember for later)
Interesting, when you see devs keep 70%, you think ah cool, but the exch rate to convert back to $ is a THIRD of that going in, so they only get ~20% of the $ coming in
Dev experiences are ~70% of the mix
So blended, the dev exch fees should be about 16% (remember for later)
Interesting, when you see devs keep 70%, you think ah cool, but the exch rate to convert back to $ is a THIRD of that going in, so they only get ~20% of the $ coming in
7 - So how does this tie in with the financials?
First, you need to convert to cashflows, not income statement info
Revenue for persistent experiences (I think the majority) is spread over 23 months, so rev is far from cash in. (Acc rules say it must be recognised over life)
First, you need to convert to cashflows, not income statement info
Revenue for persistent experiences (I think the majority) is spread over 23 months, so rev is far from cash in. (Acc rules say it must be recognised over life)
8 - Cash based income & expenses
They also recog. costs over time, so lets convert these items on inc st into cash equivalents 👇
Dev exch fee at 15% of bookings - close to the blended ave above. ✅
This will likely climb as their recent rewards to devs for engagement kicks in
They also recog. costs over time, so lets convert these items on inc st into cash equivalents 👇
Dev exch fee at 15% of bookings - close to the blended ave above. ✅
This will likely climb as their recent rewards to devs for engagement kicks in
9
Cost of Rev is 25% of bookings. Apple & Goog (at 30%) make up an increasing amt (now 54%). Shift to mobile. Implies rest is about 19%
Mgmnt say future efficiencies here will be fed to developers.
So that leaves them with 60% mgn to cover Infrastruc & People (R&D, G&A, S&M)
Cost of Rev is 25% of bookings. Apple & Goog (at 30%) make up an increasing amt (now 54%). Shift to mobile. Implies rest is about 19%
Mgmnt say future efficiencies here will be fed to developers.
So that leaves them with 60% mgn to cover Infrastruc & People (R&D, G&A, S&M)
10 User base
FY20 DAUs (users) - 33m
Young
54% under 12y old
31% from 13-24.
Bookings per user - $58
Amazingly, bookings per PAYING user (490k) is a STAGGERING $3,842 or $320 pm. How on earth are these young kids spending so much on this?
Maybe a few very large spenders
FY20 DAUs (users) - 33m
Young
54% under 12y old
31% from 13-24.
Bookings per user - $58
Amazingly, bookings per PAYING user (490k) is a STAGGERING $3,842 or $320 pm. How on earth are these young kids spending so much on this?
Maybe a few very large spenders
11 Mgmnt
Founder led - skin in the game
CEO David Baszucki seems good to me
Passion
Doing this for long
Stanford Elec Eng
Seems reserved, reminds me a bit of Tim Cook - I like
~10% stake
CFO Mike Guthrie seems very switched on & knows a lot about operations - good sign to me
Founder led - skin in the game
CEO David Baszucki seems good to me
Passion
Doing this for long
Stanford Elec Eng
Seems reserved, reminds me a bit of Tim Cook - I like
~10% stake
CFO Mike Guthrie seems very switched on & knows a lot about operations - good sign to me
12
Interesting point about mgmnt. The top folk are all in their fifties. Yet their current primary client base are under 12 😂
I suppose they all have had young kids. Doubt any of them have young kids now though
Interesting point about mgmnt. The top folk are all in their fifties. Yet their current primary client base are under 12 😂
I suppose they all have had young kids. Doubt any of them have young kids now though
13 - My experience with the game
Have played several games & experiences
Fluid & easy to use
I understand their vision of the metaverse & immersive real human interactions - but currently it's "blocky" & clearly more for younger kids
They are improving it though...
Have played several games & experiences
Fluid & easy to use
I understand their vision of the metaverse & immersive real human interactions - but currently it's "blocky" & clearly more for younger kids
They are improving it though...
14 - Vision & growth
They want to cater for a wider age demographic & expand the use cases from just games to learning (eg classroom), entertainment (eg concert) & even working together
Started JV with Tencent affiliate to operate in China
All sounds good
They want to cater for a wider age demographic & expand the use cases from just games to learning (eg classroom), entertainment (eg concert) & even working together
Started JV with Tencent affiliate to operate in China
All sounds good
15 - 1b users
They talk about ultimately connecting 1b ppl
They're on 33m now, so its a long way to go. They'd have to grow internationally & cater for wide age group. They don't say over what period. Possible I suppose.
(Currently US&CAN is 32% of users & 68% of bookings)
They talk about ultimately connecting 1b ppl
They're on 33m now, so its a long way to go. They'd have to grow internationally & cater for wide age group. They don't say over what period. Possible I suppose.
(Currently US&CAN is 32% of users & 68% of bookings)
16 Trust & Civility
I like it that they take this seriously to ensure safety on the platform. 2,300 ppl checking for civil behavior. Using AI to help.
Vital, given the kids. Child safety critical to future success. Seems clean. Differentiator perhaps.
I like it that they take this seriously to ensure safety on the platform. 2,300 ppl checking for civil behavior. Using AI to help.
Vital, given the kids. Child safety critical to future success. Seems clean. Differentiator perhaps.
17 No advertising
I also like that they prioritise user experience. No advertising currently.
They will do tasteful & unobtrusive brand partnerships with brands wanting to reach the user base. (DC comics, Nike)
Brands can have their own "worlds" or you can wear Nike shoes
✅
I also like that they prioritise user experience. No advertising currently.
They will do tasteful & unobtrusive brand partnerships with brands wanting to reach the user base. (DC comics, Nike)
Brands can have their own "worlds" or you can wear Nike shoes
✅
18 Competition
Nothing quite like Roblox. However they compete for user attention with many entities:
Social networks
gaming companies
entertainment co's
Also compete for attracting game devs with Unity & Epic. Although mgmnt say most of their game devs are only on Roblox
Nothing quite like Roblox. However they compete for user attention with many entities:
Social networks
gaming companies
entertainment co's
Also compete for attracting game devs with Unity & Epic. Although mgmnt say most of their game devs are only on Roblox
19 Positives
- Metaverse
- Young users
- Platform with network effects (content & social)
- JV with Tencent to operate in China
- Founder led with skin in game
- FCF positive - highly cash generative (pay upfront)
- Metaverse
- Young users
- Platform with network effects (content & social)
- JV with Tencent to operate in China
- Founder led with skin in game
- FCF positive - highly cash generative (pay upfront)
20 Concerns / Negatives (for me)
- Apple & Goog % of mix increasing
- Will their strong "young kids niche" be diluted if they widen the age demographic? To me, this is what makes them different (& why several brands want to be on them)
- Apple & Goog % of mix increasing
- Will their strong "young kids niche" be diluted if they widen the age demographic? To me, this is what makes them different (& why several brands want to be on them)
21 Concerns cntd.
- despite efforts on safety - privacy for minors is still tough. A few bad events & regulators & parents might become very negative
- abnormally high boost from COVID, so one can't extrapolate. Will settle before growing again. But at what pace? Hard to judge
- despite efforts on safety - privacy for minors is still tough. A few bad events & regulators & parents might become very negative
- abnormally high boost from COVID, so one can't extrapolate. Will settle before growing again. But at what pace? Hard to judge
22 Guidance for FY21
DAUs up 9% to 35.5m (midpoint)
Bookings up 10% to $2.06B
CFO dn 39% to $330M
Major slowdown expected. But at least still growing & positive cash flow.
So hard to get a feel for what will happen in FY22 & beyond.
DAUs up 9% to 35.5m (midpoint)
Bookings up 10% to $2.06B
CFO dn 39% to $330M
Major slowdown expected. But at least still growing & positive cash flow.
So hard to get a feel for what will happen in FY22 & beyond.
23 Valuation
EV/user is ~$1,023
Compares to:
$FB $414
$SNAP $329
$PINS $96 (MAU not DAU), not very comparable
$RBLX much higher but after FY21, growing faster. (FB 11%, SNAP 22%, PINS fast at 37%)
$RBLX $58 bookings/user much higher than others 5xFB, 20xSNAP, 15xPINS (MAU)
EV/user is ~$1,023
Compares to:
$FB $414
$SNAP $329
$PINS $96 (MAU not DAU), not very comparable
$RBLX much higher but after FY21, growing faster. (FB 11%, SNAP 22%, PINS fast at 37%)
$RBLX $58 bookings/user much higher than others 5xFB, 20xSNAP, 15xPINS (MAU)
24 Val cntd
Estimating users required to get 20% IRR over 5y
Yr5:
DAU - 320m
Bookings/User - dn to $40
FCF/Bookings - 25% (their LT target)
FCF - $3.2B
EV - $129B (assumed 40x mult)
Dilution - 8%pa
Inv return CAGR - 15% (from current $38B EV)
Estimating users required to get 20% IRR over 5y
Yr5:
DAU - 320m
Bookings/User - dn to $40
FCF/Bookings - 25% (their LT target)
FCF - $3.2B
EV - $129B (assumed 40x mult)
Dilution - 8%pa
Inv return CAGR - 15% (from current $38B EV)
25 Val cntd
Can they get to 320m users in 5y?
I don't know.
This implies 58% 5y forward user CAGR
FY21 guide is 9%. Last two yrs compounded is 42%.
So they will need rocket fuel from FY22 onwards 🚀
Can they get to 320m users in 5y?
I don't know.
This implies 58% 5y forward user CAGR
FY21 guide is 9%. Last two yrs compounded is 42%.
So they will need rocket fuel from FY22 onwards 🚀
26 Some questions
Who will win in the Metaverse? Roblox or Unity? Will it be a single player or multiple players? Will they be interoperable? What about FaceBook?
Still trying to get my head around this
Who will win in the Metaverse? Roblox or Unity? Will it be a single player or multiple players? Will they be interoperable? What about FaceBook?
Still trying to get my head around this
27 Concluding remarks
Firstly, this is very exciting. I like what they're doing & the potential it has
Management seem good - founder led, skin in the game. I just wonder whether current CEO (nearly 60y old) will have the energy to realise the vision
Firstly, this is very exciting. I like what they're doing & the potential it has
Management seem good - founder led, skin in the game. I just wonder whether current CEO (nearly 60y old) will have the energy to realise the vision
28 Concl remarks
This is new, this is the way things are going. The metaverse concept in fascinating.
Healthy mgns, positive FCF, good growth (FY21 aside). Platform with network effects.
What more could you want?
This is new, this is the way things are going. The metaverse concept in fascinating.
Healthy mgns, positive FCF, good growth (FY21 aside). Platform with network effects.
What more could you want?
29 Concl remarks
A part of me says kids should be playing outside with real children, not sitting on the phone. But it's a new world & this is the way things are going.
Val seems high - but who am i to judge the future cash flows and optionalities?
$RBLX looks very exciting!
A part of me says kids should be playing outside with real children, not sitting on the phone. But it's a new world & this is the way things are going.
Val seems high - but who am i to judge the future cash flows and optionalities?
$RBLX looks very exciting!
Mistake in tweet #24
The Inv Return CAGR says 15% in that tweet. It should say 20%, that's what I was solving for.
The way I work it out btw, is EV compounds at 28% and I subtract 8% compound for dilution. Not exact, but good enough
The Inv Return CAGR says 15% in that tweet. It should say 20%, that's what I was solving for.
The way I work it out btw, is EV compounds at 28% and I subtract 8% compound for dilution. Not exact, but good enough
30
@MadsC007 , you know gaming well, is this a metaverse winner?
Tagging @RihardJarc , Rihard, not sure if you’ve looked at Roblox, can you have a look at my thread when you get a chance?
@saxena_puru , have a look when you get a chance
@MadsC007 , you know gaming well, is this a metaverse winner?
Tagging @RihardJarc , Rihard, not sure if you’ve looked at Roblox, can you have a look at my thread when you get a chance?
@saxena_puru , have a look when you get a chance
31
Will add bull & bear cases
Bull case
- post FY21, network effects (content & social) work well. Users grow dramatically
- China with Tencent is a huge success
- they improve realism & immersion so much that it’s on par with Unity
Will add bull & bear cases
Bull case
- post FY21, network effects (content & social) work well. Users grow dramatically
- China with Tencent is a huge success
- they improve realism & immersion so much that it’s on par with Unity
32 - Bull case cntd
- Brand mktng success. Each brand has a virtual world like they have pages on $FB
- becomes a virtual learning powerhouse, teams up with great content players
Bear case
- post FY21, growth doesn’t accelerate much. Kids go back to school
- Brand mktng success. Each brand has a virtual world like they have pages on $FB
- becomes a virtual learning powerhouse, teams up with great content players
Bear case
- post FY21, growth doesn’t accelerate much. Kids go back to school
33 Bear case cntd
- they struggle with China
- they struggle with other use cases
- aging up dilutes their strength in the young kids space
- CEO gets tired & cashes out his chips to retire on an island
- Unity leads the metaverse play. ($FB wanted Unity after all)
- they struggle with China
- they struggle with other use cases
- aging up dilutes their strength in the young kids space
- CEO gets tired & cashes out his chips to retire on an island
- Unity leads the metaverse play. ($FB wanted Unity after all)
34
I have no good way of judging the probability of the bull & bear cases above
It seems they have all the pieces in place to execute on the bull case in all its aspects. But perhaps one or two areas might not pan out as envisaged
I have no good way of judging the probability of the bull & bear cases above
It seems they have all the pieces in place to execute on the bull case in all its aspects. But perhaps one or two areas might not pan out as envisaged
35
Tagging Roblox CEO @DavidBaszucki
Tagging @Roblox
Take a look - to see some of the thoughts from FinTwit on Roblox
Tagging Roblox CEO @DavidBaszucki
Tagging @Roblox
Take a look - to see some of the thoughts from FinTwit on Roblox
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