Roblox made its stock market debut in early March. Though initially planned as an IPO, it is the first direct listing of 2021 after a venture capital infusion of $520 million, valued at $29.5 billion.
In an IPO, new shares of the company are created as required and are underwritten by an intermediary. This intermediary, known as the underwriter, works with the company throughout the listing process, even deciding the offer price of the shares, helping with regulatory requirements, buying the available stakes from the listed company and selling them to investors via their distribution networks. In a direct listing, shares are sold to the public without the help of an underwriter. A company opting for this method would not want to dilute existing shares or does not have the resources to pay underwriters. This may also be to avoid lock-up agreements. The existing investors, promoters, or even employees can sell their shares to the public, and no new shares are created in this process. However, this minimal-cost method also comes with a few disadvantages: sale of shares isn’t guaranteed, there are no long-term investors, there is a lack of greenshoe option (an agreement where an underwriter can sell more shares than initially planned due to an increase in demand), et cetera.
Roblox is an online game platform and game creation system developed by Roblox Corporation. It allows users to program games and play games created by other users. Roblox is the biggest game in the US in terms of revenue, surpassing Candy Crush which had been on top for the past three years. Roblox had nearly 33 million active users by the end of 2020, showing an 85% increase from the previous year and an 82% increase in revenue to $924 million. Free cash flow was up from $14.5 million in 2019 to $411.2 million in 2020. What makes Roblox stand out from other gaming platforms is that developers of games get 30% of proceeds from a game, encouraging more developers to come up with new games. Roblox reported that it paid out $328.7 million to developers in 2020, up 200% from 2019, 1250+ developers earning $10,000 in the Roblox digital currency Robux, which can be further converted to cash, and more than 300 developers earning $100,000 or more. Roblox saw a boom during the Covid-19 pandemic, leading to an influx of users, the number of hours played totalling 30.6 billion.
The shares of Roblox were listed on the New York Stock Exchange (NYSE) with a reference price of $45 per share. There were nearly 199 million shares on offer. On its first day of trading, the price per share shot up to $69.50, up by 54.4%, and on the second day, it went up another 6.3%, bringing the price to $73.90. The market cap stood at nearly $39.5 billion on day two. Since this was a direct listing, no new shares of the company would be created or sold. Investors can buy or sell existing shares at the prevailing market value. Roblox Corp. is still not considered a profitable company, having $253 million as loss in 2020 compared to a loss of $71 million in the previous year. The company plans to improve sales via advertising.
Roblox is also considering introducing in-game ads to help developers gain revenue and is also introducing a new premium subscription service giving users an amount of Robux every month. Further, it is working with companies such as Marvel, Netflix, and Warner Bros. to market its products in-game. These moves will have a tremendously favourable effect on the stock market performance of the company should they materialise in the near future.