Roblox could be joining Unity ($U), Corsair ($CRSR), and Skillz ($FEAC) as the latest gaming company to go public. Founded in 2007, Roblox has become a behemoth in the gaming space. In July alone, Roblox surpassed 3B hours of playtime and according to the latest data from Roblox, developers on its platform are set to earn $250 million in revenue by the end of 2020 (up 127% from 2019). The revenue share breakdown is App Stores & Payment Processing (25%), Platform Costs (26%), Roblox Share (24.5%), and Developer Share (24.5%). The Roblox engine is free to use and takes no royalties. Roblox also pays some developers based on user engagement within their games through the Premium Payouts program, but as of July, Roblox had only paid out $2 million through that program in 2020.
Of gaming companies that went public in 2020, the closest comp to Roblox is Unity. Unity has exceeded its target share price of $34-$42 by over 100% in the first 15 days after going public. This represents a valuation ~35x TTM revenue of $640.34M. Of that revenue, only ~30% of it is recurring revenue through subscriptions (Unity’s Create Solutions). As of June 2020, 61% of Unity’s monthly revenue came from revenue sharing in UnityAds and Unity IAPs (Unity’s Operate Solutions). Roblox does have monthly recurring revenue through their users who subscribe to Roblox Premium; however, at this time it is unclear what percentage of their revenue is attributed to this program.
Based on the $250M projected Roblox developer payouts in 2020 (which is 24.5% of total revenue) we can estimate Roblox will generate ~$1.02B in revenue from microtransactions and subscriptions in 2020. Based on current market conditions and a comparable Unity IPO, we think Roblox will exceed a $30B market capitalization in 2021. We believe Roblox should trade closer to 4x TTM on the low side, which would put them at their last private valuation of $4B (February 2020). On the high side, we believe Roblox should trade at 9x TTM using Activision Blizzard as their comp. For reference, Epic Games traded at a 2.7x revenue in October of 2018.
Epic Games recently announced they are acquiring SuperAwesome, a pioneer in the “kid tech” market. This is an important move for Epic with players of all ages and lofty goals of developing the “metaverse.”
SuperAwesome’s “kid tech” infrastructure is used by more than 300 companies, including Mattel, Disney, Hasbro, and Lego. SuperAwesome has defined digital standards that keep more than half a billion children anonymous when they’re engaging with online games and videos.
As games continue to allow younger kids to play, and more importantly socialize, with people of all ages, companies need to be mindful of what data they are collecting and how it’s being used. SuperAwesome makes compliance with GDPR in Europe and COPPA in the US straightforward and easy for developers. They also offer kid-safe monetization through their AwesomeAds solution and enable more than 12 billion legally-compliant transactions monthly. Kids are more technologically literate than ever and making sure they are safe online is a top priority for any internet consumer company.