22.6 billion dollars is the market cap for Roblox.
1.9 billion was the revenue in 2021.
492 million were the losses.

Roblox came out in 2006.

Today, it has 52.2 million daily users and 220 million people use it at least once per month.

Roblox has 230 million registered users, which is up 1669% from the 13 million registered users they had in 2012.

Looking at this, two questions come to mind.

Is this a good stock to invest in?

And

Why is this game so popular?

First up, the stock itself.

Best way to figure out if valued properly would be looking at what other third party video game companies are worth, with the best example being ActivisionBlizzard, which sold to Microsoft recently for 68.7 billion.

For financials on that, Activision was worth 51.8 billion in 2021 as the market cap average.

8.8 billion dollars was revenue.
2.7 billion was profit.

A 30.7% profit margin.

Comparing that, Roblox runs at a 25.9% loss to revenue.

Valuation wise, Activision was valued at 5.8 revenue.

Roblox in comparison is valued at 11.9x revenue.

Roblox is noticeably higher valued over Activision.

I also did a quick check with another comparison, EA Games.

EA Games

34.8 billion is the market cap.
6.9 billion in revenue.
789 million in profit.
An 11.4% margin.

EA also is valued at almost exactly 5x revenue.

This shows a case, where top gaming companies take on values of 5-6x revenue, with profit margins breaking over 10% and some can be higher margin, in the 25%+ range.

Roblox hasn’t been profitable ever, where it loses more and more money every year.

Revenue growth is incredible though, where it nearly doubled in 2019 to 2020, going from 508 million to 924 million and doubled in 2021, hitting 1.9 billion.

Roblox also made a little over 500 million dollars in the first two quarters of 2022, which means this year it should make 2-2.4 billion total.

That said though, I don’t think this is a good investment.

It is valued 2x what a gaming company should be, hasn’t profited, has revenue growth at a plateau and biggest problem, it has less major titles.

ActivisionBlizzard owns titles such as Call of Duty, the Tony Hawk games, Guitar Hero, Diablo, StarCraft and many others.

EA has licenses with every sports league and movie studio, to make a mountain of games.

Roblox, I don’t really know much about, having never played it or even seen clips of it until this post, but it seems like the company itself doesn’t have anything outside the core Roblox game, with dozens of sub games in it, which have billions of plays.

So answer to question one, I don’t think this is a solid investment, but why is it popular?

First up, understanding what Roblox is.

A massively multiplayer game, designed for kids, with 50% of users being under the age of 12.

There’s different things to play, with a current model and developers have reported becoming millionaires by developing sub games for it.

Figuring out the success, without ever playing it and watching one four minute YouTube video explaining it is tough, but I think I got the general sense, looking at when it came out.

It launched in 2006, which was before multi player took steam in gaming and before apps were a thing with phones.

It also was after Second Life, which came out in 2003 and is a pretty good comparison for MMO games, just with Second Life having a slight bent towards adults.

Second Life in the 2000s, was this big story, where people said it was this virtual world that had over 100 people in 2005 living full time off jobs they made for themselves on Second Life.

By 2007, it was labeled a post peak idea, where while still around, it never has lived up to the hype major publications and media outlets gave it.

The intended user on Second Life was over 16, while Roblox has a median age of around 9-10.

Roblox also has the edge of coming in early to multi player games, which many studios post Fortnite and Call of Duty are still learning.

Roblox next benefit was pre apps, where one edge of Roblox is people make avatars and can play different games developers make, basically consolidating the app market.

Writing this, I feel like a 40 year old dad trying to describe Pokemon in 1999, but I think making a comparison to Second Life, it’s a fair point.

Final thoughts

Really cool the company is making a lot of money and has tens of millions of users.

Due to lack of diversity on product and valuation issues, I can’t recommend anyone invest in it though.