Roblox
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What is Roblox worth?
With Roblox joining the end-of-year unicorn stampede toward the public markets, we’re set for a contentedly busy second half of November and early December. I hope you didn’t have vacation planned in the next few weeks.
This morning we need to get deeper into the Roblox S-1 so we can better understand the nature of its revenue generation. Why? Because we want to start working on what the gaming company is worth; some comparisons are being made to Unity, another unicorn that went public earlier this year with a gaming focus.
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Should we apply Unity’s revenue multiple to Roblox? Or does the company deserve a slimmer multiple based on the substance of its revenue?
We’ll also have to remind ourselves how much capital Roblox last raised while private, and at what price. Given our historical knowledge of its financial results, we might be able to nail some valuations to revenue figures, helping us understand, roughly, how the venture capital community was valuing Roblox while it was private.
If you want an overview of just the numbers, Natasha and I wrote a digest here.
Now, let’s get to work.
What’s Roblox worth as a public company?
To get a foundation, let’s recall how Roblox was valued during its last private round. According to Crunchbase data, Roblox’s $150 million Series G was raised at a $3.9 billion pre-money valuation. So, Roblox was worth $4.05 billion after the February 2020 funding event.
Naturally there is a lag between when a deal is struck and when it is announced. So, let’s rewind the clock to Q4 2019 and ask ourselves what Roblox looked like at the time. From its S-1, here are the Q4 2019 numbers:
- Revenue of $138.3 million, +44.2% compared to the year-ago quarter
- A net loss of $39.6 million, +197.1% compared to the year-ago quarter
Annualizing that revenue figure, Roblox was on a $553.3 million run rate at around the time it raised that Series G. In revenue-multiple terms, Roblox was valued at 7.3x its top line on an annualized basis.
If you are a SaaS fan you are probably pretty shocked right now. Why the hell was Roblox, a software company, worth so little? Well let’s remind ourselves how it makes money:
We generate substantially all of our revenue through the sales of Robux to users. Users can spend Robux to purchase access to experiences, enhancements in experiences, and items in the Avatar Marketplace. Robux are available as one-time purchases or monthly subscriptions. We recognize revenue ratably over the estimated average lifetime of a paying user. […]
Other revenue streams include a minimal amount of revenue from advertising, licenses, and royalties.
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If you didn’t make $1B this week, you are not doing VC right
The only thing more rare than a unicorn is an exited unicorn.
At TechCrunch, we cover a lot of startup financings, but we rarely get the opportunity to cover exits. This week was an exception though, as it was exitpalooza as Affirm, Roblox, Airbnb and Wish all filed to go public. With DoorDash’s IPO filing last week, this is upwards of $100 billion in potential float heading to the public markets as we make our way to the end of a tumultuous 2020.
All those exits raise a simple question — who made the money? Which VCs got in early on some of the biggest startups of the decade? Who is going to be buying a new yacht for the family for the holidays (or, like, a fancy yurt for when Burning Man restarts)? The good news is that the wealth is being spread around at least a couple of VC firms, although there are definitely a handful of partners who are looking at a very, very nice check in the mail compared to others.
So let’s dive in.
I’ve covered DoorDash’s and Airbnb’s investor returns in-depth, so if you want to know more about those individual returns, feel free to check out those analyses. But let’s take a more panoramic perspective of the returns of these five companies as a whole.
First, let’s take a look at the founders. These are among the very best startups ever built, and therefore, unsurprisingly, the founders all did pretty well for themselves. But there are pretty wide variations that are interesting to note.
First, Airbnb — by far — has the best return profile for its founders. Brian Chesky, Nathan Blecharczyk and Joe Gebbia together own nearly 42% of their company at IPO, and that’s after raising billions in venture capital. The reason for their success is simple: Airbnb may have had some tough early innings when it was just getting started, but once it did, its valuation just skyrocketed. That helped to limit dilution in its earlier growth rounds, and ultimately protected their ownership in the company.
David Baszucki of Roblox and Peter Szulczewski of Wish both did well: they own 12% and about 19% of their companies, respectively. Szulczewski’s co-founder Sheng “Danny” Zhang, who is Wish’s CTO, owns 4.9%. Eric Cassel, the co-founder of Roblox, did not disclose ownership in the company’s S-1 filing, indicating that he doesn’t own greater than 5% (the SEC’s reporting threshold).
DoorDash’s founders own a bit less of their company, mostly owing to the money-gobbling nature of that business and the sheer number of co-founders of the company. CEO Tony Xu owns 5.2% while his two co-founders Andy Fang and Stanley Tang each have 4.7%. A fourth co-founder, Evan Moore, didn’t disclose his share totals in the company’s filing.
Finally, we have Affirm . Affirm didn’t provide total share counts for the company, so it’s hard right now to get a full ownership picture. It’s also particularly hard because Max Levchin, who founded Affirm, was a well-known, multi-time entrepreneur who had a unique shareholder structure from the beginning (many of the venture firms on the cap table actually have equal proportions of common and preferred shares). Levchin has more shares all together than any of his individual VC investors — 27.5 million shares, compared to the second largest investor, Jasmine Ventures (a unit of Singapore’s GIC) at 22 million shares.
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Roblox to host its first virtual concert, featuring Lil Nas X
Roblox this morning announced a partnership with Columbia Records that will allow it to bring a virtual concert experience featuring Lil Nas X to its gaming platform. Notably, this will be Roblox’s first-ever virtual concert, and follows similar events that have been held during the pandemic, like the “One World: Together At Home” concert to benefit WHO in April, and Fortnite’s Travis Scott concert hosted in-game, which attracted 12.3 million concurrent players at its peak.
The Lil Nas X concert, meanwhile, will be hosted in an online event space custom-designed by Roblox to allow for an immersive experience. There will be several different stages, each inspired by Lil Nas X’s songs and music videos, that will use a variety of technologies, including the latest in shadowing, lighting and physically based rendering (PBR) facial recognition technologies, the company says.
During the concert, Lil Nas X will also perform his new single “Holiday” for the first time live, as well as other popular hits.
The event itself will actually be run over three showings, starting with the main event on Saturday, November 14th at 1 PM PST. The Asia showing will follow at 10 PM PST, then the European show will be on Sunday, November 15 at 9 AM PST.
In addition, Roblox and Columbia Records will host a Q&A with Lil Nas X that will be streamed in the concert venue with a preshow at 4 PM on Friday Novemebr 13.
“We’re thrilled to partner with Columbia Records to bring Lil Nas X fans and the Roblox community together in an entirely new way,” said Jon Vlassopulos, global head of Music at Roblox, in a statement about the event. “This concert with Lil Nas X will transport players and their friends into the Metaverse, and bring to life the future of what immersive, social experiences can look like.”
Ahead of the event, the new concert venue will feature mini games and other activities for players to explore, as well as a virtual store offering exclusive merchandise, like accessories, emotes and Lil Nas X avatar bundles.
“We’re throwing the biggest virtual concert of 2020, and I hope everybody in the world can come check it out,” said Lil Nas X, in a statement. “I feel very lucky to be the first artist to ever do this on Roblox. We had so much fun putting this together for my fans, and I can’t wait for everyone to see it,” he added.
Roblox has been signaling an interest in expanding its platform beyond gaming in recent months, as the pandemic fueled a jump in monthly users and player spending, as well as a desire for virtual activities in general. The company in July reported it had grown to more than 150 million monthly active users, up from the 115 million it had in February, before the U.S.’s shelter-in-place orders had kicked in.
It also in July launched “Party Place,” a virtual venue focused on hanging out for meetups or birthday parties.
The shift to virtual platforms for socializing has helped boost Roblox revenues, as well.
One third-party estimate, from Sensor Tower, pegged Roblox mobile spending at $94 million in September. It also suggested Roblox had passed $2 billion in spending to date. A more recent report from Safe Betting Sites estimated Roblox players spent $820 million in total from January through September 2020.
The gaming company is poised to IPO, but a date has not been disclosed.
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As tech stocks rally, bring on the IPOs
During yesterday’s tense voting and this morning, shares of American-listed technology companies are shooting higher.
The tech-heavy Nasdaq composite is up around 3.35% this morning, more than double what the broad S&P 500 index is currently managing. SaaS and cloud stocks kicked off the day up a staggering 4.98%, a sharp rally in the value of smaller, more growth-oriented technology companies.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
For technology companies on the wings of the IPO market, it’s great news.
In 2020 it can be easy to forget, but tech stocks do not have to rise. They merely have in recent months, perhaps warming the waters for more technology debuts as the fourth quarter races toward its midpoint. The Exchange has heard whispers from several folks that the late-November/early-December period could be active for new filings, bringing rising stocks and pent-up demand together for a possible IPO run.
We’ll see. Today’s rally — and ballot measure results in California — could be the push companies like Airbnb and DoorDash needed to stop faffing around with private filings.
In pedestrian terms, the getting is good right now for public tech companies, so if you are going to go public, go get got while the getting stays good.
Today, let’s examine recent market gains for tech stocks and remind ourselves who is expected to go public next. Then, of course, chat about all the unicorns on the unofficial IPO list who could find a greased path ahead of them toward a flotation.
Gains
Big tech stocks are gaining, small stocks are up and software companies are hot. The NASDAQ is now less than 5% away from its all-time highs, and the Bessemer Cloud Index is now just 9% down from its own, a rebound from its prior status in correction territory. (A correction occurs when an index falls 10% or more from highs.)
So, who does the rally help? Let’s rock through a list:
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Free-to-play gaming giant Roblox confidentially files to go public
The gaming company Roblox announced today that it had confidentially filed paperwork with the SEC to make its public debut.
In February, the company, which operates a free-to-play gaming empire with tens of million of users, was valued at $4 billion after a Series G funding round led by Andreessen Horowitz . The company has raised more than $335 million in venture capital funding, according to Crunchbase.
The company has not detailed the number of shares it plans to offer and furthermore notes in standard legalese that their timely debut is “subject to market and other conditions.” After a slow 2019 for tech IPOs the rebound of public markets in mid-pandemic 2020 has provided an awfully wide window for tech startups reaching for their debuts.
In the games space, we recently saw the debut of Unity Technologies, which makes a popular game engine that developers use to build and monetize gaming titles.
Roblox offers an interesting sell to both consumers and developers, shipping a free-to-play vision of the future which pushes developers away from graphics-intense game design toward building content that can be played on a wide variety of devices. The games company has been more successful than most in translating a first-party experience’s success into a robust developer network. Roblox’s platform has been particularly successful with young audiences.
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How Roblox completely transformed its tech stack
Picture yourself in the role of CIO at Roblox in 2017.
At that point, the gaming platform and publishing system that launched in 2005 was growing fast, but its underlying technology was aging, consisting of a single data center in Chicago and a bunch of third-party partners, including AWS, all running bare metal (nonvirtualized) servers. At a time when users have precious little patience for outages, your uptime was just two nines, or less than 99% (five nines is considered optimal).
Unbelievably, Roblox was popular in spite of this, but the company’s leadership knew it couldn’t continue with performance like that, especially as it was rapidly gaining in popularity. The company needed to call in the technology cavalry, which is essentially what it did when it hired Dan Williams in 2017.
Williams has a history of solving these kinds of intractable infrastructure issues, with a background that includes a gig at Facebook between 2007 and 2011, where he worked on the technology to help the young social network scale to millions of users. Later, he worked at Dropbox, where he helped build a new internal network, leading the company’s move away from AWS, a major undertaking involving moving more than 500 petabytes of data.
When Roblox approached him in mid-2017, he jumped at the chance to take on another major infrastructure challenge. While they are still in the midst of the transition to a new modern tech stack today, we sat down with Williams to learn how he put the company on the road to a cloud-native, microservices-focused system with its own network of worldwide edge data centers.
Scoping the problem
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Roblox jumps to over 150M monthly users, will pay out $250M to developers in 2020
Gaming platform Roblox, which has seen a surge of use due to the coronavirus pandemic, now has over 150 million monthly active users, up from the 115 million it announced in February before the U.S.’s shelter-in-place orders went into effect. The company also said its developer community is on pace to earn over $250 million in 2020, up from the $110 million they earned last year.
These metrics and other company news were announced over the weekend at RDC, Roblox’s annual developer conference that was held virtually for the first time because of the COVID-19 pandemic.
Roblox, to be clear, doesn’t build the games that run on its platform. Instead, offers the platform for developers to build upon, similar to the App Store. Many of its most popular games are free, monetizing as players spend on in-game items using virtual cash called Robux. Some of the company’s larger individual games, before the pandemic, would average over 10 million monthly users. And over 10 games as of February claimed more than 1 billion total visits.
Image Credits: Roblox
Thanks to the pandemic, however, these gaming milestones have significantly increased in size.
During the first part of the year, the Roblox game Adopt Me! reached 1.615 million concurrent users and over 10 billion visits. A new game called Piggy, launched in January 2020, now has over 5 billion plays. Jailbreak surpassed 500,000 concurrent users during a live event held in April 2020.
In total, there are now 345,000 developers on the Roblox platform who are monetizing their games, and over half of Robux being spent in catalog is now being spent on user-generated content (UGC) items, in less than 12 months after the UGC catalog program began.
The more than doubling of Roblox developers’ earnings year-over-year is related to a combination of factors, including the platform’s growing game catalog, new development tools, international expansions, and of course, a pandemic that has locked kids indoors away from their friends, forcing them to go online to connect.
On notable factor driving the increased developer earnings, however, was Roblox’s recent introduction of Premium Payouts, which pays developers based on the engagement time of Premium subscribers in their game. Through this system, launched earlier this spring, developers earned $2 million in June 2020 as part of this program alone.
Image Credits: Roblox
During the RDC event, Roblox also detailed its plans for expanded developer tools and platform updates. This includes new collaboration tools for larger development teams, which will allow developers to grant permissions to team members and contractors to work only on a certain part of their game. It will also launch a talent marketplace by the end of the year to help developers find people and resources to help with game development.
Roblox also said it will begin rolling out automatic machine translation for all supported languages, languages including Brazilian Portuguese, English, French, German, Japanese, Korean, Simplified and Traditional Chinese, and Spanish. This feature will help developers more easily reach international users with localized versions of their games.
Later this summer, Roblox said it will launch “Developer Events,” a new service that will help developers find one another in their local communities. Initially, these events will be held virtually, but will transition to in-person events when it’s safe to do so.
The company also signed its first music label partnership with Monstercat, an indie electronic music label known for its collaborations with gaming titles and artists, including Marshmello and Vicetone. The partnership has initially yielded 51 tracks for developers to use, free of charge, in their games. These include songs from a variety of EDM genres, such as Drum & Bass, Synthwave, Electro, Chillout, Electronic, Breaks, Future Bass, and more. More tracks will be added over time, Roblox says.
“The accomplishments of our developer community have eclipsed even our loftiest expectations; I am incredibly impressed by the unique and creative experiences being introduced on the Roblox platform,” said David Baszucki, founder and CEO, Roblox. “Our focus is to give developers the tools and resources they need to pursue their vision and create larger, more complex, more realistic experiences and collectively build the Metaverse.”
Roblox raised an additional $150 million in Series G funding, led by Andreessen Horowitz’s late-stage venture fund, just before the COVID-19 health crisis hit the U.S., valuing the business at $4 billion. Ahead of this, Roblox had been working to take its platform further outside the U.S. and into China, through a strategic partnership with Tencent focused on bringing its coding curriculum to the region and through added support for Chinese languages, among other things. Also with the additional funding, Roblox said it planned to help further its expansion effects, and build out more tools and its developer ecosystem.
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Roblox launches Party Place, a private venue for virtual birthday parties and other meetups
The coronavirus pandemic and related government lockdowns have led to a surge in online gaming — particularly on social platforms where people can connect with real-life friends in a virtual venue. We’ve already heard of Fortnite birthday parties, Roblox playdates and Animal Crossing meetups taking place online amid the pandemic. Now, Roblox is launching a new feature called “Party Place” to directly cater to the growing demand among users for a dedicated, private place to host virtual events.
The company’s new “Party Place” venue is based on the technology the gaming company built to accommodate its own virtual events, including its 7th Annual Bloxy Awards and the One World: Together At Home concert, hosted in April in collaboration with Lady Gaga.
The venue itself doesn’t offer any activities or games, but rather serves as a private place for Roblox users to gather — for example, for a virtual birthday party, a remote learning activity with classmates, for virtual playdates, or anything else. From Party Place, the group can chat and hang out as they decide which Roblox game they plan to play next.
The product is in beta testing, according to the Roblox website, and has seen only around 45.3,000 visits since its launch last week. Likely, many of these visits were just from curious kids poking around in a public area as you can today join the Party Place venue without a private server if you want to just see the venue. Roblox, however, says it’s making private servers available for free in Party Place, so parents and kids can create a place where only those friends they directly invite can join and play.
Roblox has been doing particularly well as the pandemic has forced children to stay at home under lockdown. The entertainment platform now has more than 120 million active monthly players and, as of June, surpassed a milestone of $1.5 billion in lifetime player spending, according to a report from Sensor Tower. It hit the new record only seven months after reaching its $1 billion milestone — a surge in consumer spend attributed directly to the global COVID-19 pandemic and the related growth in entertainment platforms and social gaming.
In March, Roblox revenue grew 28% month-over-month to $69.8 million, the report found. In April, revenue grew 34% to $93.2 million. And by May, sales hit close to $103 million.
Roblox had already begun catering to players’ interest in social gaming with its launch of its “Play Together” game sort in April, which made it easier for players to find those games where you socialize with others — like visiting a virtual shopping mall, going camping or riding virtual water slides, for example. These games also offer an option for private VIP servers, often for a small fee paid in Roblox’s virtual currency, Robux, which is renewed on a subscription basis until you cancel.
Of course, the company isn’t the only one developing products in response to user demand for online “hangout” spots in virtual worlds. Fortnite, for instance, introduced “Party Royale,” a game mode offering a weapons-free party island featuring mini-games and, sometimes, even live concerts. Its Travis Scott concert was hosted in the game, attracting 12.3 million concurrent players at its peak.
For today’s younger players — the COVID kids, so to speak — platforms like Fortnite and Roblox are becoming their own version of a social network. The kids don’t just go online to play. They socialize, chat and hang out with a mix of real-life friends and virtual ones, blurring the lines between online and offline in ways that traditional social networks, like Facebook, do not.
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‘Animal Crossing: New Horizons’ and the limits of today’s game economies
Kaiser Hwang is a longtime member of the games community and a vice president at Forte, an organization building an open economic platform for games.
“Animal Crossing: New Horizons” is a bonafide wonder. The game has been setting new records for Nintendo, is adored by players and critics alike and provides millions of players a peaceful escape during these unprecedented times.
But there’s been something even more extraordinary happening on the fringe: Players are finding ways to augment the game experience through community-organized activities and tools. These include free weed-pulling services (tips welcome!) from virtual Samaritans, and custom-designed items for sale — for real-world money, via WeChat Pay and AliPay.
Well-known personalities and companies are also contributing, with “Rogue One: A Star Wars Story” scribe Gary Whitta hosting an A-list celebrity talk show using the game, and luxury fashion brand Marc Jacobs providing some of its popular clothing designs to players. 100 Thieves, the white-hot esports and apparel company, even created and gave away digital versions of its entire collection of impossible-to-find clothes.
This community-based phenomenon gives us a pithy glimpse into not only where games are inevitably going, but what their true potential is as a form of creative, technical and economic expression. It also exemplifies what we at Forte call “community economics,” a system that lies at the heart of our aim in bringing new creative and economic opportunities to billions of people around the world.
What is community economics?
Formally, community economics is the synthesis of economic activity that takes place inside, and emerges outside, virtual game worlds. It is rooted in a cooperative economic relationship between all participants in a game’s network, and characterized by an economic pluralism that is unified by open technology owned by no single party. And notably, it results in increased autonomy for players, better business models for game creators, and new economic and creative opportunities for both.
The fundamental shift that underlies community economics is the evolution of games from centralized entertainment experiences to open economic platforms. We believe this is where things are heading.
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In-game app-development platform Overwolf acquires CurseForge assets from Twitch to get into mods
Overwolf, the in-game app-development toolkit and marketplace, has acquired Twitch’s CurseForge assets to provide a marketplace for modifications to complement its app development business.
Since its launch in 2009, developers have used Overwolf to build in-game applications for things like highlight clips, game-performance monitoring and metrics, and strategic analysis. Some of these developers have managed to earn anywhere between $100,000 and $1 million per year off revenue from app sales.
“CurseForge is the embodiment of how fostering a community of creators around games generates value for both players and game developers,” said Uri Marchand, Overwolf’s chief executive officer, in a statement. “As we move to onboard mods onto our platform, we’re positioning Overwolf as the industry standard for building in-game creations.”
It wouldn’t be a stretch to think of the company as the Roblox for applications for gamers, and now it’s moving deeper into the gaming world with the acquisition of CurseForge. As the company makes its pitch to current CurseForge users — hoping that the mod developers will stick with the marketplace, they’re offering to increase by 50% the revenue those developers will make.
Overwolf said it has around 30,000 developers who have built 90,000 mods and apps, on its platform already.
As a result of the acquisition, the CurseForge mod manager will move from being a Twitch client and become a standalone desktop app included in Overwolf’s suite of app offerings, and the acquisition won’t have any effect on existing tools and services.
“We’ve been deeply impressed by the level of passion and collaboration in the CurseForge modding community,” said Tim Aldridge, director of Engineering, Gaming Communities at Twitch. “CurseForge is an incredible asset for both creators and gamers. We are confident that the CurseForge community will thrive under Overwolf’s leadership, thanks to their commitment to empowering developers.”
The acquisition comes two years after Overwolf raised $16 million in a round of financing from Intel Capital, which had also partnered with the company on a $7 million fund to invest in app and mod developers for popular games.
“Overwolf’s position as a platform that serves millions of gamers, coupled with its partnership with top developers, means that Intel’s investment will convert into more value for PC gamers worldwide,” said John Bonini, VP and GM of VR, Esports and Gaming at Intel, in a statement at the time. “Intel has always prioritized gamers with high performance, industry-leading hardware. This round of investment in Overwolf advances Intel’s vision to deliver a holistic PC experience that will enhance the ways people interact with their favorite games on the software side as well.”
Other investors in the company include Liberty Technology Venture Capital, the investment arm of the media and telecommunications company, Liberty Media.
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