Roblox Corp (RBLX) Analysis

Hello all. If you’re not familiar, or are looking for a ‘hot stock tip’ then read this first.

Acknowledgements

This analysis, and this entire venture, would not be possible without the help and support from many friends on twitter. Especially Christopher Olliney, Michael Policar, Keith Akre, Bill Brewster, Lily Francus, Jim O’Shaughnessy, and Caitlin Cook. Most of all, my wife, McKyla, who has bore the brunt of wrangling two children while I read, learn, write, and publish these pieces. Without her this would not have been a reality.

I reached out to Canalyst for their Roblox model to kick start my analysis. They have been very helpful and supportive. This would be nowhere as thorough had it not been for them.

Let’s get into it.

Roblox – My Perspective

  1. Roblox is to video games what social media is to the internet.

  2. Roblox captures incentives and identities together, successfully creating V1 of the metaverse.

  3. Roblox has the potential to disrupt many current platforms. If they play their cards right, it will be inevitable.

Contents

  1. Introduction

  2. Investment Thesis

    1. Sandbox

    2. Identity

    3. Gravity

    4. Economy

    5. Language

    6. New tech flywheels on old humanity flywheels

    7. Infinite Games

  3. The Business Model

  4. Company Background

    1. Slow Bake into Virality

  5. Differentiation and Competitors

    1. Game/Social Network/Sandbox

  6. Customers (Users)

    1. Generation Alpha

    2. Aging Up

    3. Expansion of use cases

  7. Suppliers

    1. A beautiful (and expensive) partnership

  8. Industry Trends

    1. More connection

  9. The Numbers

Introduction

Roblox is a different kind of company that enables not only a network effect to flourish, but is sticky with a great future. Many young people are playing with all their available free time, as the platform allows them to create, explore, and be themselves together. That’s where Roblox differs from all other games: it is an evolving, growing, platform. I see Roblox truly ushering in the mataverse described in Snowcrash, only better. The main driver behind this is the concept of infinite play vs winning. More on this later.


Investment Thesis

Many people are thinking like Roblox is just a game. This cannot be further from the truth. Roblox is a first version of the metaverse, a concept popularized in the novel Snow Crash by Neal Stephenson. The metaverse is “a virtual-reality space in which users can interact with a computer-generated environment and other users.” In the following segments I’ll dive into my investment thesis surrounding Roblox.

Much of this is simply attempting to think clearly with a little bit of data. If you want to skip this to the numbers start scrolling.

1. Sandbox – Everyone is now a creator. But with powertools.

The main strength of Roblox is its guided-sandbox structure. I’m calling it this because it’s comparable to having an adult guiding ‘you’, a child, and giving you tools to create some of the most amazing things on the internet. “Any experience imaginable can be created on Roblox.” Home – Roblox Before, when you wanted to create an experience on the internet, you had to employ game (experience) creators. Now everyone is a creator. This may seem trivial, but remember when you had to hire a photographer for everything? And now everyone is a photographer? Yeah it’s like that.

2. Identity – “This is me.”

Roblox users must experience the world through their avatars. These avatars are not only customizable, but the customization abilities are growing and adapting. This is extremely important, as our avatars, much like our twitter profile pictures, say something about us. Users know this on a deeper level. (How many deliberate twitter users do you know with their original generic twitter profile picture?) This identity value creation by each user points to something bigger. And note that the average user age will place much more emphasis on avatar identity than older users.

You can buy hats, clothes, and special accessories for your avatar in Roblox. This will continue to expand as Roblox expands in capabilities. The more people entrench their identities into avatars, the more identity roles will play out in revenues: luxury items, belonging to a group, etc.

See the two images below to get a feel for how avatars were, vs how they were in 2018. That’s a lot of change, and a lot of growth. Another note: identity will play a big part when VR acceptance ramps up. Roblox is expanding their capabilities to allow facial mirroring: the expression of the user is expressed on the avatar, in real time. 😲 So, if below is V1 and V2, what is V3? V8?

Old avatar

Old avatar

Newer avatars

Newer avatars

3. Gravity – Word of mouth on steroids, riding a T-rex

Now here’s where it gets interesting: you have a bunch of Gen Alpha kids building experiences from scratch in a sandbox, pouring hours into these things. Even learning to code using Robloxs own language, Lua. What does a 13 year old kid want to do when they builds their own badass game? They drag their best friends, who also love the same things the creator loves. It doesn’t matter if it’s a first person shooter, a social club, or a recreation of a real hangout spot.

What’s key here is you have 8 million mostly-young developers creating and pulling people in. When people are having fun in the sandbox, others want a piece. This goes beyond a network effect. Think of community developers in Roblox like “super nodes” in a network. This has been a huge driver for this kind of growth:

(Some of this spike is directly related to Covid, of course)

(Some of this spike is directly related to Covid, of course)

I get excited about this kind of curve. Starting slow, a decade to really get going, and then POW it’s everywhere. Functions like that don’t happen very often. When they do, we get things like Amazon, Google, etc.

4. Economy – Buy my experience!

Users can develop their own experiences or items and then charge other users Robux for those experiences/items. Robux can be bought in the app or any console where Roblox is played. Users can then ‘cash out’ with Roblox into their native currency. So, the better and more popular items and experiences the developer(s) create, the more they earn. This is one of the biggest incentivized growth hacks I have ever seen. Imagine if YouTubers could charge per video instead of having to show ads?

This developer earned over 40 million Robux. That’s approximately $140,000.

This developer earned over 40 million Robux. That’s approximately $140,000.

Here’s another instance. A company that only builds games on Roblox. Even one of their head developers main identity is Robloxian. (Tying it back to the importance of identity). Check it out:

Twentytwopilots seems interesting.

Twentytwopilots seems interesting.

5. Language – Can you hear me now?

There are over 700 programming languages. Roblox has their own. While I do not know how to code, I do know the importance of having your own language if creating a tribe that lasts. Just like twitter, or any organization, has its own overarching language. Roblox has its own proprietary software that enables any user to learn and build on its system. This plays a major role in ‘stickiness’ of the business.

6. New tech flywheel on old humanity flywheel

Here’s where things get interesting.

When we combine the sandbox (the tech), identities of users, gravity, economic incentive, and language (humanity), we get a flywheel-on-flywheel effect which is extremely powerful. I think this is the reason behind the slow consistent growth from 2007-2014 exploding into what we have today. I think this trend will continue. There may be a dip when the world forgets that terrible year we had with Covid, but humanity will continue to envelope itself with tech, not shy away from it. Tech and humanity will always become more enmeshed. Looking back in our species’ history, it always has.

Below is a conservative continuation of DAUs growth over the next few years:

Daily Active Users (DAUs), mm


Impressive Numbers

Eight million developers are working on this company, properly incentivized. Let that sink in.

We know it works because of the rest of the numbers.

Home - Roblox *as of year ended December 31, 2020

Home – Roblox *as of year ended December 31, 2020

7. Infinite Games

If you’re still with me, good.

Infinite games are games which are meant to be continued playing. “There are at least two kinds of games. One could be called finite, the other infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.” Finite and Infinite Games by James Carse. Roblox captures the infinite game model. With 8 million independent developers (and counting), we will see new genres and new ways of experiencing the metaverse together. This only comes as a strength because Roblox has essentially adopted the philosophy of empowering, equipping, and then getting out of the way, thus further engrossing users in the infinite game.


The Model

What I like about it and some observations

Roblox is a platform that allows users to play online with other people in what are called ‘experiences’ created by independent developers. Users can also customize their avatars. Roblox runs on what is called the Reality Engine, the core of the Roblox experience. “It is a proprietary, high-performance, cross-platform, real-time simulation engine that dynamically scales fidelity to match device capabilities. The overall engine runs at 60 frames per second and can adaptively scale from an iPhone 4S to the latest gaming PC.” Roblox

  • The coolest thing about the engine is that it can be played cross-platform: PC, Xbox, iOS, and Android. The client adapts dynamically to the capabilities of each device. This helps with future-proofing and age-proofing their business, especially as they ‘age up.”

  • Second, Roblox is a real-time social platform. It’s no longer friends getting together to ‘get the bad guys’ in Call of Duty. Now it’s creating and exploring with friends: network effect multiplied by creativity across devices. Powerful.

  • I am able to go to the Roblox website, create an account, and start playing in under 2 minutes. The iPhone app is even simpler. The execution is flawless. I can tell that Roblox isn’t a ‘smash hit of 2020-2021’ but a deliberate engine that has been polished for nearing two decades.

Company Background

Here is the beginning of Roblox: Interactive Physics

IP03.jpg

What to do with Interactive Physics

Here is where Roblox is now.

In this video I will be showing you the 9 Most Realistic Roblox Games to Play in 2020.❤️ MAKE SURE TO SUBSCRIBE for more Roblox updates and secrets: https://…

If this isn’t exponential growth then I don’t know what is.

Next is a basic timeline of company milestones. Look at incentives laced into the platform leading to the final point: Q3 2020 of $496M in Bookings.

Web capture_2-4-2021_173032_www.sec.gov.jpeg

David was created for this role

Roblox is the culmination of David Baszucki. You could say he was created for this role. He started Knowledge Revolution in 1989 with an educational application called ‘Interactive Physics’ (a program that allowed users to create physics experiments on their own)

Users started using the application for play: seeing what would happen when you crash two cars together, etc. This was a far cry from solving problems that David had hoped, but he noticed that kids were using the application for play. More on this later. He enabled play, the natural evolution of humanity with technology, rather than forcing his original vision. He enabled, equipped, then got out of the way.

‘Knowledge Revolution’ evolved into ‘Working Model’ and in 1998 was acquired by MSC Software where David was CEO until 2002. He then started his own angel investment firm.

In 2004 David started working on DynoBlocks, the predecessor of Roblox. They renamed and officially launched in 2006. The whole concept was for creators to create their own games and be able to play others’ games as well. (Think YouTube, only a real-time social/play aspect).

Around 2007 Roblox started the transition to using Robux, the in-game currency used by users and developers. This currency can be exchanged for real world money. So now we have users, developers, a working intra-metaverse market that has an exchange rate for USD, across all platforms, with a massive and growing market. Made by THE guy who started out making games for kids while allowing their creativity to run rampant instead of forcing his own vision, thus embracing technological metaverse evolution.

We can say that Interactive Physics was Roblox V1. So when we see Roblox founded in 2004, it has roots all the way back to 1989 by the same guy.

Differentiation

Roblox isn’t a game where people come together to work as a team, but to create and explore as friends with the economic incentives for fame and fortune. This is extremely different than the ‘show up and blow stuff up with your friends’ games of the past. Now for industry positioning: Roblox is primed for a VR debut. They are currently working on a facial-mapping feature that reflects the users facial expression on their avatar in real time.

The main differentiation, and their strength, is the fact that Roblox doesn’t have to keep creating hit after hit like all the other competitors. They only have to empower their users/developers to keep creating. They do this by incentivizing. IT’s a win-win-win situation where investors, users, and the company all win. Beautiful.

The second differentiation is the social aspect, thus creating a network effect. When we create things we want to share them. This has a profound effect on the micro-networks that Roblox creates. Timmy creates a small experience in Roblox and can’t shut up about it to his friends, thus pulling in 1 or 2 of them. Then, they are all in. This is happening on a grand scale around the world.

Competitors

Unity and Epic games are considered competitors but I’m not giving them much weight.

  • John Riccitiello, the CEO of Unity, was previously the CEO of Electronic Arts. He also championed getting Unity’s game engine into Oculus. John is knowledgeable, has a vision of the future, but I think he lacks the skin-in-the-game that Dave from Roblox has. (He was also asked to resign from EA due to the overall decline there).

  • Epic games is another story. Founded, and ran, by Tim Sweeney, who developed the Unreal Engine 3. (It was well received and won some awards). Here’s the thing: it relies on producing hit after hit.

I place a heavy emphasis on leadership because I can see what it does to games and businesses in general. Poor leadership kills organizations no matter the size. EA games have been a bust for a while now due to the pay-to-win model they adopted, leaving users frustrated while shelling out more and more money. Epic Games, conversely, have been a hit with names like Grand Theft Auto 5 and others. But here’s the thing with that: you have to keep cranking out hit games. It’s only a matter of time before you’re running the same base game with many different flavors. And you have to keep cranking out the hits.

Customers

First: Roblox users are primarily under the age of 13, but I view that as a bonus. You and I grew up probably playing games that have a nostalgic feel to them, but those games did not allow for creative expression or exploration. Roblox does. As these kids grow up creating on this platform things will change on a massive scale. If something is not completely customizable, these kids are out. We had mobile-first take us by storm, now it’s remote-first. Next it’s fluid-first. If the user cannot change everything about whatever they’re using, it’s an automatic ‘no.’ WordPress also adopted this by being open source, and now they are a large chunk of the internet. (We’ll see this philosophy of ‘empowering, equipping, and then getting out of the way’ more and more).

Second: One of Roblox’s strategies for expanding is ‘aging up’ which means to appeal to older users. This will naturally happen as the Roblox client becomes more real, and more experiences are shared via word-of-mouth.

Third: Covid has brought on a new era. Commuting is down, and will continue to decline as people blend living with work in the new economy. (There will be a mound-shaped increase here at the end of Covid, but I digress) which brings us even more time for other activities. The same thing with work. We are discovering that 40 hours of work per week is ridiculous for most professions. Even teachers are starting to utilize YouTube for their classes and using class time as a study hall. A win-win. The main point: over the next decade we will have increasing time outside of traditional work activities of commuting and spending time in an office. I predict that a growing percentage will even work within Roblox platform in the future. (Onboarding specialists, consultants, etc.)

Suppliers

The biggest supplier to Roblox is Google, Apple, and Microsoft. Since users need a portal to experience Roblox, these suppliers aren’t going anywhere anytime soon for them. While many view this to be a main drag on margin and net revenue, I view it as a unique mutual opportunity for both sides. Roblox puts users on those devices for longer than normal, and those devices are prime choices for experiencing Roblox. We will soon see VR be a main point in this supply as well, further fusing the bond between user and metaverse.

Industry Trends

The amount of time we spend on screens is ever-increasing. It’s not just games, but work/social/leisure. Roblox has all of that. Thus, the use case of Roblox is extremely large and growing quickly. I don’t need to show you a graph of screen usage increase in the last ten years.

One aspect most people don’t think about is the acceptable cost of the video games industry. In the future we will willingly pay much more to play these games and use these platforms, just like we pay an exorbitant amount to simply own a car these days.

The reasons why we play are expanding fast.

Rapper Lil Nas X gave a live concert within Roblox:

LNX_Concert_Old_Town_Road.jpg

Just as the Iphone app Clubhouse has “shoot your shot” and other rooms for meeting people, video games will expand their role as pure entertainment to more of a metaverse offering: meeting people, work, consumption of art, and even the creation of new genres.

Business Quality

Roblox is two stacked flywheels leveraging each other: a flywheel of technology on the flywheel of humanity. Since this isn’t a post on the bullishness of humanity, but Roblox, I am not going to dive into all the aspects of humanity but just stick to the main points of the technology and business.

The main point that I like is that the business is quickly on its way to being heavily profitable with massive inevitable upside. The momentum created by the developers (all 8 million of them), combined with the user base, is hard to beat. I don’t think even Roblox realizes it yet, but they created something that is going to grow into a bigger platform for people than LA and NY combined. It can be ran by a ham sandwich and still do ok for a long time. Almost no debt, and profitable. This is because the leadership at Roblox has made extremely quality decisions since 1989 stated above in the history portion: mainly, fostering creation, play, and evolution.

Users First

When David created Interactive Physics in the late 80s he noticed that kids were using it to play rather than create classic physics experiments. Instead of squashing, David fostered the aspect of play. This attitude carries over to today with the economic incentives that Roblox has given developers to create. That incentive, a share of Robux, will increase over time.

Leadership

As a small business owner I place an enormous amount of emphasis on leadership. The fact that Roblox is still led by the same guy is impressive. There are two types of leaders: mercenaries and missionaries. Mercenaries are incentivized to get. Missionaries are incentivized by vision. A missionary will break their backs trying to make a vision come to reality. A mercenary will retire and take their cut long before things get detrimental. David definitely falls into the ‘missionary’ type: when things get tough he’s not looking for an easy out. We know he is looking long and hard at the future. He’s probably even staying awake at night thinking about hard problems.

When I asked for feedback on this piece I got some flack for ‘hero worship’ by a friend that I admire very much. While I understand where it’s coming from, I think it’s warranted here. Rarely do we see anyone stay with a job longer than 5 years, or 10 years. But to start something, evolve it, sell it, and return to the ‘scene of the crime’ after being able to retire wealthy is a testament to David’s commitment to this vision.

Flywheel

Just as youtube made the incentive behind learning to create videos, Roblox is creating even more incentive to code using their proprietary coding language, Lua:

Baszucki: You can make an initial Roblox experience by dragging and dropping. If you want to become one of our top developers, you have to use code. Lua, our coding language, is built into the site. We have tutorials. Hundreds of thousands of people are learning to code on our site.

Why The Creator Of Roblox Thinks His Gaming Platform Will Top Minecraft

The Numbers

Roblox is expensive right now. Everything is, but that isn’t deterring me from taking a close look at how they handle capital. Here’s what I like:

  • Simple model of tracking key metrics that make sense:

    • Daily Active Users (DAUs)

    • Bookings (users spending money to buy Robux and then spending those Robux in-platform)

  • Scalable growth of key metrics

    • DAUs growth from 12m to 32.6m in 2 years

    • Revenue growing from 325m in 2018 to 923m in 2020

Source: Canalyst. My new best friend.

Company-Specific Operational Data:

Op Data Big.jpg


Cash Flow:

From the S-1:

Free Cash Flow

We define free cash flow as net cash provided by operating activities less purchases of property and equipment.

We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet.

The following table presents a reconciliation of net cash from operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow, for each of the periods presented:

Note the Free Cash Flow change from nine months ending Sep 30, 2019 and 2020.

Web capture_2-4-2021_171720_www.sec.gov.jpeg

Cash Flow Analysis:

I reached out to Canalyst about their 200 mark for Capex. They basically stated that it’s difficult to narrow down a number for IPOs, but that number will change with quarterly updates. I don’t imagine Capex skyrocketing for any reason do to the nat…

I reached out to Canalyst about their 200 mark for Capex. They basically stated that it’s difficult to narrow down a number for IPOs, but that number will change with quarterly updates. I don’t imagine Capex skyrocketing for any reason do to the nature of software as an industry.


Valuation Metrics:

No matter how we measure it, Roblox is expensive right now. But when I look at the business model I have a hard time not wanting to own a small piece of it. More on this in the conclusion.

No matter how we measure it, Roblox is expensive right now. But when I look at the business model I have a hard time not wanting to own a small piece of it. More on this in the conclusion.

Bookings, mm

Here’s a small chart I made with data from the Canalyst model. These might play a bigger role in future write-ups.

Upcoming Catalysts

I don’t have any upcoming catalysts for this business, just as there is no upcoming catalyst for evolution and creation of worlds by users. It is already in full effect. So hop on board.

Valuation

It’s silly to talk about valuation at this point, as Roblox is quite expensive, but that doesn’t change the fact of the strengths that Roblox brings to the table. I personally think that Roblox is undervalued based on how I think the future will play out. There is a very large chance that I am wrong, but I’m willing to risk that with my personal capital. I have a 10% personal position. (I explain my barbell method at the conclusion)

Barriers to entry

For this I’m going to talk about specifically competing with Roblox and how it’ll be difficult for any company to do so.

  • The network effect is strong with this one. More gaming companies are starting to lower the barriers to entry for making a game, but with Roblox anyone can create any game at any time, at scale, for free, with no barriers at all. Combine this with Roblox’s own coding language, Lua, we have a never-before-seen instance that combines network effect, play, and creativity in an infinite realm. The barrier to replicating this is huge. Many will try, probably, but it’s like trying to beat Facebook in 2012. Roblox has been up and running, and profitable, for a while. I can’t imagine another company somehow creating 20 million experiences, and paying out $329 million to community developers anytime soon.

  • The evolution happening in real time across community developers cannot be matched by a company. It must be a network. That’s the barrier.

  • The game costs relatively little to users while having a major impact. Since developers can create whatever they want, and charge whatever they want, there is a natural capitalist economy operating which benefits the end users: affordable, awesome games.

  • Sticky. A network effect is sticky. Friends are there, earning power is there, and play is there. Soon, work will be there. (Watch out for independent Roblox onboarding consultants for your business)

  • Viral. There are no sales teams. This is a naturally ‘infectious’ game that pulls people in for good reason.

Risks

This is a recession-proof business. Kids will play games in good times and bad, while adults will socialize in the same way. The biggest risk is a new platform that iterates quicker than Roblox. I think this is an extremely low risk, however, due to the slow and consistent growth Roblox has had evolving into explosive growth. It’s a classic exponential function.

The concern I keep hearing about is of unwanted language directed at others (and kids). I am not worried about it. As of right now, Roblox has 2,300 people working on safety. I imagine there will be a setting similar to any other social platform that filters incoming information from other users. I see this as a standard growing pain.

Opportunities

We think of games as their own genre in tech, but when we start thinking freely about what a ‘game’ can be then we get Roblox. The metaverse is the highest opportunity here, and anything less would stifle growth. David and his team are rightfully incentivized to push for that end.

I recently started learning about the incentives behind moving towards open-source, much like WordPress, and am growing more convinced of that need for a long-term solution to staying relevant. It is a very new idea for me though. Will probably explore this more at a later date.

Conclusion

I started a 10% position on the day that Roblox hit the public market, in the mindset of hopefully holding Roblox for decades. I will continue to verify their performance as a business and their commitment to users, developers, and safety. I know it’s expensive. I know it’s risky and assertive, but that is my preference.

My Portfolio Thesis

I use a traditional barbell investing method:

  • 50% Low risk, long term only, ETF. (I’m a VTI guy). No gold. No crypto. Just VTI.

  • 50% high risk (by industry standards), long term, individual businesses. All of these split into 6-10 businesses with the goal of holding for 10 years minimum. I will continue to verify each business as long as I hold it because no business lasts forever.

  • Rebalancing within the risk side of the barbell as I exit a position.

  • The low risk side of the barbell does not get rebalanced, only added to. I do not have FU money yet, so preserving that side of the barbell is crucial. Once that side has grown to a comfortable level where my family does not need to worry about money, all remaining capital will flow into the risk side. (This is hopefully a 30 year game, a 30 year website).

  • Ideally the risk side of the barbell will overshadow the stability side of the barbell. We will see.

  • I do not pretend to predict the future. In all things, I say ‘we will see’

The businesses that I look for have a few things in common:

  • Founder led

  • Infinite upside or changes the way things ‘always have been’

  • Fits in my frame of thinking about the world

    • Technology and wealth is a positive sum game

    • We are at the beginning of infinity

    • Fear sells, optimism fits reality better

    • A handful of amazing people just like doing amazing things. Find them and invest in them

    • No time for politics, social agendas, only growth

    • Our human operating system (HOS) is stagnant, but hackable with technology

PS

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  2. This first writeup was incredibly difficult and painful. It was also the most fun I’ve had in a long time. If you got any value out of this post, please share this with a friend, on twitter or social media, and be sure to tag me.

  3. If you have any questions you can comment below and I’ll do my best to answer.

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  5. I will post a de-brief for members only in a few days. (Lessons learned, quiet announcements, etc.)

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Responses

  1. This is a great piece, through and through. The company analysis, from historical developments to the present day and the future, to the financial analysis and portfolio commentary. A great piece and I think is a refreshing change to the normal investor commentary. Michael tells a story, not just telling you his opinion.

  2. Hi Michael, good piece. Two questions;
    1.) What do you make of the daily payers number being so small? It infers a v small number of total users pays a large amount each, for whatever reason.
    2.) Why would it simply survive a move to VR? this would only be possible if their coding language and platform was ready for it. Do they already have partnerships with leading VR device makers or platforms?

    1. Good questions.
      1 – I’m not concerned with it. In each industry a small percentage of users/buyers will put forth the most revenue. I consider that a bonus.
      2 – It’s not a move to VR, but an expansion to VR. Roblox supports Oculus Rift and HTC Vive.

  3. Hi Michael. I enjoyed reading this analysis it was thought-invoking, which is what I look for in this kind of content. Here are some of the thoughts had after reading this and giving it some thought. (There are a few, I’ll write different replies to this comment).
    FWIW, I also invested in RBLX on IPO day, fairly small position for me though.

    1. "Imagine if YouTubers could charge per video instead of having to show ads?"
      Since Robux items/experiences can always be viewed for free by others users, and it merely takes robux to acquire your own copy of the item/experience…. I’m wondering a better comparison would be "imagine if youtubers could show the videos ad-free, and only sell ability to comment." Or perhaps "imagine if twitch streamers could show videos for free, and then sell the opportunity to play games with the creator." (this is partially done already, since twitch is free to watch, but AFAIK no one is selling/auctioning the chance to play along.
      There is definitely a unique edge here, if Roblox is able to continue to make their sales funnel longer & wider with these types of experiences.

    2. Another potential competitor & "Barrier to Entry" for us all to consider & keep an eye on – Amazon Luna.
      Barriers have never stopped AMZN before, and they already possess many of the ingredients to turn Luna into a network-effects-monster in its own right. They’ll probably have very low CACs if they tap into Prime users and/or similar services they already offer. Luna’s play appears to be as more of a game "aggregator," and perhaps they’ll just end up selling themselves as a distribution channel to other game developers (or new game developers: https://www.developer.amazon.com/luna ).
      Luna + Twitch just seems like a pair that makes Amazon a big looming competitor in this space.

    3. "Roblox Admin badge for your avatar and rockstar status with our community"
      I found Roblox job postings that included this as a "perk"! I’m pretty skeptical on this as a perk for hiring top talent, but maybe I’m out of touch? …will be pretty interesting if they’re able to attract top talent by offering "goodwill" in the form of a simple avatar badge – that would be a major competitive advantage.

    4. "Lua"
      Having, their own programming language might be their attempt at creating a pipeline of employees, too. FB and Google have done this with tools like React and Angular. Make it good, make it free, and others will use it for their projects, giving you a larger pool of potential hires with the right skills to work on your team (thus you can pay lower salaries due to large supply). ..however, looking at Roblox job postings, only some of them note Lua as a preferred required language/skill. So I’m not sure.

      Also on language, are you referring to Twitter’s language, like its "common language," aka terminology ? This is a bit different than Roblox having its own programming language IMO (see point above).

      I agree there might be some stickiness to Lua, especially combined with the fact that many of the people learning it are kids learning to code for the first time, but these things are hard to predict. And developers can learn additional languages as they progress.

    5. "Roblox users are primarily under the age of 13"
      Were you able to figure out the average age of the daily active users? Or better, what’s the age distribution look like? I wasn’t able to find more info, let me know if you have a good source. I would guess seeing the distro would be insightful in some way, though we can probably guess it’s mostly young ppl…but we could be wrong? At the least, confirming that it’s young people could help us guesstimate when their core DAUs will reach employment age & the age of having (more) disposable income.

    6. Similar to the question about daily active users…
      What do we know about the "8 million developers" ..how many of those are active, what’s their age distribution? What percentage have ever created something that was "used"? What percentage are actively creating now?
      I’m not sure what we could glean from info about their age / how active they are, but 8mil seemed high to me, so I’m curious to learn more.

    7. Infinite games are great…I do worry about whether there’s enough clear direction / narrative / story to draw new ppl in & keep them involved. Good stories require simple focus on the hero, the challenge in front of them, and their journey to resolving the challenge. Infinite games work a bit differently of course, but if the games lose this edge entirely, it could go poorly. I might need to read up more on infinite games to see how other companies / games have handled this problem…but anecdotal evidence tells me games of this type may just disappear quickly if/when the crowd moves to a new trendy thing.

    8. Regarding competition…comparing Roblox with Epic Games is an interesting thing….Another good model might be to compare this space with media streaming companies. Youtube, like Roblox, need not worry about creating the next big thing, they just let their creators do that, and share profits with them. Disney+, on the other hand is like Epic Games…it might be hard work to create the next big hit, but they do have a large back-catalogue of content already. Some of it is monetized well, some not so much. Seems easy to see, though, that Roblox could more easily pivot into internally-developed games (sort of like how Netflix now develops their own shows/movies), as opposed to how hard it might be for Epic Games to build out a user/developer infrastructure. There’s also a question of long-term durability – Disney’s back catalog appears to have a long future ahead of it, while Netflix’s catalogue might not have as much lasting power…I can only think of a handful of video games with lasting power, many seem pretty transient to me.

    9. I do think it’s great they are offering both Lua (code) and "no-code" options for developing games. Many people in the software space view no-code as a "flash in the pan," – I think they’re wrong, but it’s also not a ‘software development killer.’ Both will continue to grow.

    10. What is the source of Roblox’s "deferred revenue"? Is it perhaps Robux that were bought, but haven’t been spent yet? I wasn’t able to work this out yet, let me know if anyone has looked into this…

    11. Growth estimates for a"verage bookings per daily active user" is very low, basically 5% a year. So we’re basically counting on growth in DAUs (daily active users) to really drive overall revenue/earnings growth, unless they find an addtl revenue stream…right? They had big DAU growth in 2020, of course, but they estimate it will drop down to 15% and 12% yoy in ’21 and ’22…which really isn’t much growth if you think about how the stock is valued, currently. They predict DAU growth back in the 20%s in ’23-’25 but that’s so far out that I consider it guess-work. Thoughts?

    12. "It’s silly to talk about valuation at this point, as Roblox is quite expensive"
      It’s in these situations of high growth where it is most important to discuss valuation, in my humble opinion. We have to calculate the growth required to justify the current valuation, even if we’re looking out 5-10 years in order for it to make sense. Otherwise we are just speculating.
      For example, a company can have 100% growth for the next 10 years (an amazing feat!) – but all for naught if the current valuation requires 110% growth for it to be fairly valued 10 years from now.

      1. Fantastic point. I’m not sure how to figure that, yet.

        I don’t know how the future will play out, but I like that I cannot see how Roblox will be fully utilized, just like other platforms. Utilization techniques and niches will be discovered for many years. Hopefully decades. And this isn’t the final iteration of the web. More to come. BUT, you are very right. One thing I would like to dive in more to if I could go back. Will pick your brain more on this in the DMs

    13. One last one I’ve been pondering a lot for all of my investments:
      The "Risks" section doesn’t discuss high valuation (and the potential for permanent loss of capital) as a risk. This is the biggest risk IMO, because if growth is a tick lower than expected, the valuation can cut the stock price in half.
      This is just table stakes in the game of growth stock investing, of course. I just wanted to add this last point to remind myself the risk of these high-growth stocks.

      1. That’s a great point. First, when I looked at this investment I looked at it like an early days with other right-tail platforms such as youtube. The main thing I like about youtube is there is no shortage of pivoting that a creator can engage in. And they are incentivized to pivot if something isn’t working out. It’s an amazing likeness, I think, and one that isn’t fully understood by the market. If Roblox tanks for any length of time (greater than a year) then it’s because of poor leadership. As of right now, a ham sandwich could lead the company and still do extremely well.

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