Game Plan: Roblox's IPO​


By Robyn Ma​

The Story

Roblox (RBLX), an online video game company, went public on the New York Stock Exchange last week (CNBC). The platform allows users to play, create games and hangout with friends. Users who develop games can profit, with developers earning up to six-figure salaries (Financial Times). Roblox makes money through Robux, its virtual currency, and by taking 30% of profits from developers (CNBC).

Roblox went public via a direct listing (selling existing shares instead of offering new ones). Although the reference price set by NYSE was $45, shares began trading at $64.50 and jumped to $69.50, providing the company with a market capitalisation (market value of a publicly traded company’s shares) of approximately $45.3 billion (New York Times; CNBC). This represents a 50% increase in share price compared to what private investors paid during its $520 million financing in January (Financial Times).

While Roblox has not reached its profit-making stage, it is expected to bring in between $1.44 billion and $1.52 billion in revenue in 2021 (Morning Brew). Last year, revenue increased 82%. Nonetheless, the company’s net loss jumped from $71 million to $253.3 million in 2019 (New York Times). Why, then, are investors so confident in the company?

What It Means For Businesses And Law Firms

Investors are keen to fund fast-growing companies. They are willing to “overlook large losses in favour of fast-growing models” (Financial Times). Some say this signals “an increasingly hot public offering market” (New York Times).

With people staying at home due to lockdowns, there has been increased interest in the gaming industry, and gaming start-ups are popping up. In the United States last year, $56.9 billion was spent on gaming; this is a 27% jump from 2019 (New York Times). Roblox’s popularity was “turbocharged” by Covid-19 (New York Times). On average, 32.6 million people use the platform, doubling since 2019. Last year, users spent $1.9 billion on the platform (Financial Times).

There are sceptics, however. Since the pandemic has fueled strong growth for the company, some question its viability, especially once pandemic restrictions ease (CNBC). David Baszucki, Roblox’s founder, is nonetheless confident that the hype is here to stay (New York Times). Looking ahead, the company is focused on two things: first, preventing young players leaving the platform for games meant for older players; second, tapping into China’s mobile gaming boom (CNBC). Its goal is to become a ‘metaverse’ - “a shared online universe where people can live and interact as though they were there in person” through, say, encouraging users to host events on it (New York Times). Recently, Lil Nas X hosted a performance on Roblox which received over 33 million views (Verge).

Law firms may be involved in several ways from different ends. This sudden boom within the video gaming industry will bring new IPOs and deals. Gaming start-ups keen to go public will turn to law firms for help with conducting due diligence, drafting and reviewing IPO documents, and ensuring the company is in compliance with the law of the relevant jurisdiction.

Roblox worked with Goldman Sachs and Morgan Stanley for its listing. Lawyers will also be involved to help the company navigate a complex regulatory landscape and expand into new jurisdictions. The US SEC (Securities and Exchange Commission) was unhappy with the way Roblox portrayed its revenue from sales of Robux (Reuters). As the company gets bigger, regulators will likely scrutinise it even more, and lawyers will be there to help the company anticipate and address these concerns.

Image Credit: Miguel Lagoa / Shutterstock.com