Thoughts from my personal experience with Roblox over the past 15 years

by SLUT_STRANGLER

You can look at their books, but I believe it’s difficult to make an informed decision about $RBLX without some experience with the website and games themselves. Here are some of my thoughts from being an active member since 2007. Feel free to ask me any questions you might have about the platform.

Roblox has been available to the public since 2006; you’re not investing in a new up & coming company. It’s been around for 16 years, which is very long for an online game. That in itself is a good sign, but its potential and success is pretty cemented as of now. The lack of worldwide reach (with the majority of users being from North America) is worrisome, but there may be room for growth.

They are currently sitting at 2.4 billion registered users. The daily active user (DAU) count is somewhere around 30 million (see S-1 form in my edit). Thus, the vast majority of registered users are inactive users or bots who prey on dumb kids to steal their account info via cookies. This is more of an anecdote than something you can really back up with hard numbers and data because it’s obviously not something Roblox tracks itself. Every group and comments section on Roblox is plagued by bots spamming fishy links that take you to places for “free Robux” and such. There’s a game on Roblox called New User Machine that tracks the total amount of players and shows the most recently created ones. Basically, it’s a conveyer belt of bots with random letter & number usernames. Their security and captcha, to summarize, sucks.

Roblox itself is a game client, but the website houses a variety of games made by users, of varying quality. There are some real gems but some real garbage as well. The front page cycles the same popular games and not a lot of up-and-coming ones. I can imagine it would be quite difficult to break into the algorithm if you’re not already a popular developer. Some people use/pay for bots to pump up their game’s likes and user count. This is obviously against the site’s TOS, but it’s difficult to get ahead unless you pour hundreds into on-site ads.

Years ago, they shut down the forum, which contributed to a lot of helpful and insightful on-site discussion. They did so because they believed it was becoming difficult to moderate. Hire more moderators? That on top of the fact that the chat filter (both on-site and in-game) is becoming increasingly overbearing, it’s difficult to hold a conversation on the website, let alone form a tight-knit community. I feel a community is essential to the success of a social game platform like this one; right now, it feels like a soulless, barren corporate wasteland, compared to what it was before. Take a look at their logo change, which summarizes the company’s new ethos well. There’s the argument that the chat filter needs to be overbearing because of the possibility of online predators – which is true – but there’s a difference between overbearing and broken. Sometimes, every second word is censored, even completely innocent ones.

Their customer support is pretty dismal. Not much else to say here, but I’ve personally dealt with it, and unless you are asking something really basic that can be answered by looking at the FAQ, they’re not much help. Just your typical outsourced copy & paste replies. When it comes to accidental moderation resulting in bans or account deletion, or account theft, they’re not very helpful. I’ve had an account made in 2010 deleted in 2016 for something I did not do (account theft; the account itself was stolen) and they were no help.

Years ago as well, the “free” currency Tickets were removed, leaving the premium one, Robux. Tickets were awarded on daily login and could be used to purchase cosmetics and such. Now, join any game and almost every avatar you see is the default one because the vast majority of kids aren’t paying for the premium membership which gives you monthly Robux, nor are they paying for Robux itself.

Thus, parent’s wallets are the limiting factor on how much Roblox can grow, because a lot of the older base such as myself shares the same sour sentiment regarding the website as a whole. Even newer users are seen calling for the “glory days” of Roblox to come back, which is odd since they themselves did not experience those “glory days”. That being said, the general community sentiment seems that not many people are happy with the site in its current state, which makes me wonder if it’s current young user base is sustainable or if Roblox depends on cycling generations of kids and isn’t really capable of building an older following in its current state.

Moving on, there’s a thriving black market for Robux and limited cosmetic items because of the aforementioned poor on-site economy. The cosmetics catalog used to have sales for holidays like Black Friday and Memorial Day. These are no longer a thing as of the last few years, which seems like a simple enough thing to do to keep Robux flowing in the economy, but they refuse to do so. (??)

Speaking of site-wide events, celebrations like a yearly Egg Hunt, events which were dear to many users, are no more. Instead, they are replaced with corporate promotional events. These don’t yield independent games made by Roblox themselves like the Egg Hunt; instead, independent developers are “contracted” to shimmy these elements into their games. Doesn’t make for a very memorable experience, and I don’t know if the microtransactions yielded are any higher than they were for the previous events.

The search function on the website is pretty broken; for example, if you search the cosmetics catalog for “Adidas hoodie”, that can net you “ADIDAS ADIDAS ADIDAS ADIDAS” named items that may not be a hoodie or relevant to what you’re looking for at all, just something that’s spammed the tag you searched for. This has been the case for years and no attempt to remedy it is evident.

Recently, user-generated content (UGC) has been introduced to the cosmetics catalog, in which approved users can upload hats and other cosmetics rather than just Roblox themselves as before. One of the only good features introduced in the last few years in my opinion, but as a result, Roblox itself has essentially stopped making any cosmetics themselves.

Basically, with the content creation almost exclusively done by independent users and developers, the site now runs itself. As a result, it feels the platform has been stagnating creatively for years. Beyond updating the game client, it’s not really clear what (if anything) Roblox does behind the scenes to promote growth. There’s a lot of very simple improvements and features that could be introduced to satisfy the user base and maintain the appeal to kids and the older audience, but Roblox seems to be reluctant to do so for some reason. For instance, it’s weird that users are begging for on-site sales, which are such a cornerstone of almost any business, or site events, which should be essential as a social game platform. This makes me worry they are forgetting that their user base made them successful in the first place. In short, it doesn’t seem to have the exponential growth it saw from 2007 to the early/mid-2010s, which is worrisome as the platform as a whole is not doing a good job at creating a loyal user base.

All that being said, this is my perspective of a player. I hope a developer can chime in with their thoughts on the pros and cons of developing on Roblox, what their Robux income looks like, and how that translates into real-world currency.

EDIT: This post has blown up way past the point I expected it to. As such, I feel it’s necessary to address some of the points that myself and others have brought up in this thread. Going forward, this will be more of a financial approach that can tie in with my product/customer analysis.

Here is Roblox’s S-1 form. I want to specifically focus on a few sections:

We have a history of net losses and we may not be able to achieve or maintain profitability in the future.

We have incurred net losses since our inception, and we expect to continue to incur net losses in the near future. We incurred net losses of $97.2 million, $86.0 million, and $203.2 million for the years ended December 31, 2018 and 2019, and the nine months ended September 30, 2020, respectively. As of September 30, 2020, we had an accumulated deficit of $484.0 million. We also expect our operating expenses to increase significantly in future periods, and if our DAU growth does not increase to offset these anticipated increases in our operating expenses, our business, results of operations, and financial condition will be harmed, and we may not be able to achieve or maintain profitability. We expect our costs and expenses to increase in future periods as we intend to continue to make significant investments to grow our business. These efforts may be more costly than we expect and may not result in increased revenue or growth of our business. In addition to the expected costs to grow our business, we also expect to incur significant additional legal, accounting, and other expenses as a newly public company. If we fail to increase our revenue to sufficiently offset the increases in our operating expenses, we will not be able to achieve or maintain profitability in the future.

Roblox is currently relying upon their Daily Active Users (DAU) to increase past their record all-time high to achieve profitability after a history of net loss. This record was achieved mostly likely due to the current pandemic keeping kids locked inside. They touch on this here:

We have experienced rapid growth in recent periods, and our recent growth rates may not be indicative of our future growth or the growth of our market.

We have experienced rapid growth in the three months ended June 30, 2020, September 30, 2020 and for a portion of the three months ended March 31, 2020, due in part to the COVID-19 pandemic given our users have been online more as a result of global COVID-19 shelter-in-place policies. For example, our bookings increased 171% from the nine-months ended September 30, 2019 to the nine months ended September 30, 2020. We do not expect these activity levels to be sustained, and in future periods we expect growth rates for our revenue to decline, and we may not experience any growth in bookings or our user base during periods where we are comparing against COVID-19 impacted periods (i.e. the three months ended March 31, 2020, June 30, 2020, and September 30, 2020). Our historical revenue, bookings and user base growth should not be considered indicative of our future performance. We believe our overall acceptance, revenue growth and increases in bookings depend on a number of factors, including, but not limited to, our ability to:

• expand the number of developers, creators, and users on our platform;

• provide excellent customer experience and customer support for our developers, creators, and users;

• increase global awareness of our brand.

The bolded bullet points here tie in directly with points I have mentioned in my original post, along with this section here:

We depend on our developers to create digital content that our users find compelling, and our business will suffer if we are unable to entertain our users, improve the experience of our users, or properly incentivize our developers and creators to develop content.

Our platform enables our developers to create experiences and virtual items, which we refer to as user generated content. Our platform relies on our developers to create experiences and virtual items on our platform for our users to acquire and/or use. Our users interact with these experiences, which are largely free to engage with.

Largely free to engage with – this echoes my previous sentiment in which few players are really seen spending money on this game, at least compared to the amount who don’t.

So, let’s conclude. Where do we stand?

So, it’s clear that the company is well cemented and has elements that should signify growth, but it’s still unclear why such significant investment and presence in the online video game market has not yet translated to profit. This makes it difficult for me to make a bull case for $RBLX. The DPO on March 10th is expected to be around $45. Had this offering been in the single digits or teens, I believe a great long value play could’ve been made. For me, $45 is a bit too rich for my blood for a company that is hinging on continued growth past the pandemic and a lot of other things going right that should have already happened in the last 16 years that they have been in business.

EDIT 2: I feel the need to address a point brought up in this comment chain, which is a great read and offers the developer insight I was looking for. A lot of Roblox’s viability for future growth hinges on continuing to grow as a game engine & platform rather than just a social platform for kids that happens to have games. Here are my thoughts on that, as things stand now.

For Roblox to be taken more seriously as a game engine, like Unity or Unreal, they need to continue to rebrand and move past the image of “kid’s Lego game/Minecraft alternative”, which will consume even more capital than they’re already investing, not to mention the costs of simply going public. Their VC funding last year leading to their 30M valuation is 7x bigger than the funding of the previous year. Whether that symbolizes huge future growth or dumping the company on retail investors as a backup is up to your belief in the company.

The game engine uses Lua, and it has improved a lot in the past years. Here are some images showing what’s possible. Looks great, right? Yes, but their target demographic doesn’t have cutting-edge PCs that can run those graphics. From their S1:

68% of our engagement hours on the platform were from users who signed up through the Apple App Store and Google Play Store.

These kids play on tablets, not supercomputers. That being said, any game developed in Roblox needs to work with the economy of the website. Unity and Unreal don’t suffer from this, because they were never a social platform for kids. Whether or not that is a limiting factor to growth depends on the games developers want to make. You must also keep in mind that whatever is developed on Roblox needs to be gobbled up by an age group that is predominantly under 13. From their S1:

For the nine months ended September 30, 2020, 54% of our users were under the age of 13.

A lot of accounts could have fake birthdays, lending further to the idea of a young player base. As a result, complex games with cutting-edge industry tech isn’t the cash cow here. This means that all the money invested in improving the platform might not result in tangible returns. Furthermore, the most popular games are cash grab “simulators” and carbon copies of games that already exist, sometimes with stolen assets. That presents a copyright problem if Roblox is to continue expanding.

If you got this far, thanks for reading, and best of luck in your future investments.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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