Everything You Need to Know About the Roblox IPO

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Aja McClanahan is a personal finance writer who has a story of getting out of over $120,000 in debt. She's been featured in Yahoo! Finance, MarketWatch, U.S. News and World Report, Kiplinger and has written for publications like Business Insider, Credit Karma, Inc., and many others. Aja writes about investing and personal finance for Wealthsimple. In her spare time, she manages her own investment portfolios for herself, husband, and two kids. Aja double majored in Spanish and Economics and holds a Bachelor of Arts degree from University of Illinois at Urbana-Champaign.

If you know any kids under 12, you’ve probably witnessed them playing Roblox or heard them talking about it. It’s a wildly popular gaming platform with a large, growing userbase and promising potential as a tech company.

If you’re considering investing in this online gaming company, here’s some information that might help you learn more about the company’s debut on the New York Stock Exchange (NYSE) and if it makes sense to add Roblox shares to your portfolio.

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What is Roblox?

Roblox is an online gaming platform. Although the age range of users on the platform indicates usage by some teens and even adults, most users are under 13 years old.

What differentiates Roblox from other gaming companies is that it doesn’t create content, but instead relies on user-generated content for its revenue. Developers can create in-app goods and sell them to other users on the platform. The revenue-sharing model is 70/30, with developers keeping a large portion of their earnings.

This revenue model means that Roblox doesn’t have to create content for income. It’s very similar to platforms like YouTube or eBay. The company doesn’t create anything, produce any goods or provide any services. In this case, the company is simply an intermediary that consumers and producers use to interact and exchange money in the Roblox economy.

An impressive part of the Roblox ecosystem is that young developers, many in their teens and early twenties, earn money creating content on the platform. Not only is the gaming company producing a rising generation of potential coders, it’s providing economic opportunities to people of all ages all over the world.

What is Roblox’s current market cap?

Roblox Corporation raised $150 million in venture funding back in 2019. This funding round brought the company to a $4 billion valuation. In January of 2020, the company raised another $520 million that took its valuation to $29.5 billion.

Currently, the company’s market cap sits at around $51.88 billion. As it stands, Roblox seems to be growing and it’s one of many reasons why many investors are interested in owning a piece of the organization.

When is the Roblox IPO taking place?

Roblox went public on March 10, 2021. It currently trades under the ticker RBLX on the NYSE.

Instead of engaging an investment bank and issuing new shares for its IPO, Roblox went public through a process called a direct listing offering. This means that those who already owned shares in the company could sell them on a public exchange. This route to going public can be much less expensive and straightforward than a more conventional IPO process.

Either way, shares of Roblox’s stock are now available to the public, and you can currently invest in the company the same way you would with any stock.

Why are people interested in buying Roblox shares?

When people buy any investment, it usually means they have a reasonable expectation that the company’s performance will improve over time. When a company improves its financial standing, it could increase demand for the stock, thereby increasing its price.

In short, investors are looking for appreciation, and to some, Roblox’s business model seems promising enough to deliver what investors are looking for.

Here are some key metrics that tell us more about the company’s performance:

  • Roblox generated $920 million in revenue in 2020, a 111% increase year-on-year

  • Over 150 million people play Roblox once a month, and 33.4 million use it daily

  • Roblox paid $250 million to developers in 2020 as part of its Developer Exchange program

  • User spending peaked on Roblox in Q2 2020, with $319 million spent

  • Free cash flow went from $6 million in 2019 to $292.6 million in 2020 but the company still operates at a loss

How’s Roblox’s performance so far?

On the first day of trading, Roblox’s shares closed at $69.50. As of this writing, that shares are trading around $90.

In about three months, the price for the stock has appreciated considerably. When a stock’s price appreciates, it could mean the underlying financials, like revenue and profits, are increasing or demand in the market for the stock is increasing, or both.

Roblox’s first quarterly earnings report beat analysts’ expectations:

  • Loss: 46 cents per share

  • Revenue: $387 million, up 140% from a year ago

  • The company’s net loss for the quarter was $134.2 million

  • Daily active users, or DAUs, rose to 42.1 million, up 79% from last year

  • Users spent 9.7 billion hours on the platform, up 98% year over year from March 2021

On the day this news broke, shares of Roblox were still trading up 5% in after-hours trading.

In essence, Roblox still seems like a mixed bag of results. On the one hand, the company is increasing the number of users on the platform, and revenue is following. On the other hand, the company still has yet to turn a profit, which is a common characteristic these days for tech stocks.

If you’re an investor familiar with investing in tech IPOs, these numbers may not bother you. In fact, you may understand the company’s potential to be acquied… You might feel comfortable holding this stock for speculative purposes and have a proven strategy to exit your position at the right time.

If you invest on the basis of a more fundamental framework, you may think twice about adding this stock to your portfolio, simply because it’s still not profitable and you aren’t confident if buying this stock will result in the gains you are looking for.

Neither approach to investing is wrong. It should come down to what you are comfortable with and how well you handle risk and volatility in your portfolio.

How can I buy shares of Roblox?

As you would with any investment, read the company prospectus to understand its business model, risks, and financial projections before investing. Once you’ve done your research, the steps to invest in the company are easy:

  1. Find a brokerage firm. Online is ideal. Your account can be opened and funded in just a few days once your personal information is verified.

  2. Place an order for the stock according to your investment objectives: market, limit, stop order or buy stop order are common orders used to buy shares

  3. Wait for confirmation that your order has been received and completed

Once you’ve placed your order and you are an official investor in the company, be sure to check in on your investment from time to time. Make sure the company’s core principles and operating philosophies align with your personal convictions and financial goals. If so, you can always increase your position in the company as time passes. If not, you can always sell your shares as needed.

Last Updated June 21, 2021

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