Roblox Q3 2021 – Pandemic independence.

Roblox confirms that it is not Peloton.

• Roblox has exited the pandemic in good shape despite its users getting out and about again confirming that it is a proper contender for the Metaverse if or when it comes to the mass market.
• Q3 2021 bookings / EPS were $637.8m / LOSS$0.13 which was ahead of expectations of $624.2m / LOSS$0.04.
• Revenue booked under US GAAP was $509.3m which increased by 102% YoY in a clear indication that the gradual normalisation of society has not impacted Roblox’s business.
• DaU have also continued to grow at 47.3m which was up 31% YoY on the Q3 2020 which has already been swelled by the pandemic keeping everyone at home.
• Cash Flow was also very strong as the business is already close to break-even on a cash basis (thanks to stock compensation) and its customers pay upfront for the currency they use.
• Users buy Robux to spend on the platform and while the cash is received by Roblox, it is not recognised as revenue until the Robux are spent on a digital item or service.
• Hence, while users and engagement continue to expand, Roblox will be very cash generative.
• It is only when growth stabilises or slows that the cash flow will start to take a hit as non-cash-based revenues grow as a proportion of the overall revenue.
• By that time, the company should be profitable enough to withstand the impact meaning that the likelihood of a liquidity problem at Roblox is very low indeed.
• Including the $1bn of debt raised in October, the company now has around $3bn of cash on hand ensuring that the business is very well capitalised.
• The fact that Roblox has not seen a slowdown as the pandemic ends has given the market renewed confidence in the Roblox business case sending the shares up 27% to $97.83 in after-hours trading.
• This demonstration that Roblox is more than just a “stay-at-home” stock lends weight to the notion that it is a contender to be part of the Metaverse which Mark Zuckerberg has just bet his entire company on.
• This is because Roblox is a 3D virtual world (like Minecraft) meaning that it will lend itself very well to virtual and augmented reality once they can get past the technological roadblocks that are holding them up.
• In many ways, the Metaverse already exists in the digital world, but it is limited by the devices with which users can live their digital lives within it.
• Consequently, the Metaverse has the potential to be the next generation of the Internet but this means that it must be ubiquitous in that everyone can access it from any device and digital items can be transported from one place to another.
• As it exists today, everyone is building their own siloed version of the Metaverse of which Roblox is just one.
• Roblox is more complete than many of its competitors as its economy, users, and developers are all well-defined and work well but it has a long way to go before it is much more than an entertaining game platform with blocky graphics.
• Roblox now has a market capitalisation of $56bn putting it on more than 25x 2021 revenues.
• This is a lot to pay for a future digital ecosystem that probably has 10 years or more to go before it can really challenge the existing status quo.
• I suspect that there will be a period of great disappointment when the market realises that the Metaverse will not appear overnight and gets bored with waiting.
• It is at that time that the stocks will be available for much less which will represent the time to get in.
• This could be some years away.