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How the pre-teen sensation Roblox became a business one, too

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Roblox, the video game platform which has become wildly popular among preteens, raked in close to $1.2bn from selling virtual currency to its users in the first nine months of the year, as activity surged under lockdown.

The figure was included in a share prospectus for the company published on Thursday evening, where the company laid out its case for investors ahead of an initial public offering.

What the company labels “bookings” — sales activity that is not yet fully recorded as revenue — was almost entirely composed of virtual currency purchases in Roblox and the $1.2bn total represented a 171 per cent increase from the same period in 2019.

Roblox recognises revenue from sales of the digital currencies, known as Robux, over the average lifetime of a playing user, which it currently estimates at 23 months.

Even during a coronavirus pandemic boom for gaming companies, Roblox has had conspicuous success, coupled with concern from some parent groups about its potentially addictive nature and the existence of offensive content on the platform.

Roblox listed its ability to “provide a safe online environment for children” as a risk factor in the prospectus.

In the first nine months this year, the company boasted 31.1m daily active users spending 22.2bn hours on its platform. This year it overtook Minecraft, the video game acquired by Microsoft in 2014, in active monthly users.

Yet its losses have been expanding along with revenues. The Roblox prospectus reports net losses of $203m in the nine months to 30 September, on revenues of $589m, compared with losses of $46m on revenues of $350m in the same period last year.

Roblox said it would raise as much as $1bn in its public offering, likely a place holder number, with Goldman Sachs, Morgan Stanley and JPMorgan acting as lead underwriters.

The start-up was most recently valued at $4bn when it raised a $150m funding round led by the venture capital group Andreessen Horowitz in February.


$209.2m


Amount earned by Roblux developers in the first nine months of 2020

Roblox’s success was rooted in its model as the “YouTube of the gaming world”, said Matthew Warneford, founder of children’s digital consultancy Dubit. Rather than creating games, it offers developers tools to build their own game worlds.

“That allows for innovation in a way that can’t exist [in traditional gaming] because of the cost it takes to compete,” he said. “All the big studios are . . . investing tens of millions into a game, hopefully having a big success . . . [whereas] it costs Roblox nothing to bring a new game on board.”

The 18m “experiences” available on the platform stretch across genres, ranging from unofficial versions of other titles, recreated with Roblox’s signature blocky characters, to digital pet adoption simulators, to virtual cities where young users can build homes, earn livelihoods and hang out.

While a subset of most popular games capture the bulk of players on the platform, there is still potential for new games to go viral, said Mr Warnefood. Survival horror game Piggy was created only in January but has been played more than 6.5bn times, making it the fourth-most popular game on the platform, according to data from Dubit.

The 18m ‘experiences’ available on Roblox range from unofficial versions of famous games to virtual cities where young users can build homes, earn livelihoods and hang out © REUTERS

Developers can earn money by selling in-game items, such as pets or guns, for the platform’s digital currency, Robux, bought with real money. Almost one-half of the earnings are split evenly between Robux and developers, with the remainder spent on platform costs such as hosting and app store and payment processing fees.

Roblox said developers had earned $209.2m up to the end of September this year, compared to $72.2m during the same period in 2019.

“I wouldn’t say it’s mainly been successful [in encouraging innovation and retaining creators] because of developers being able to make money, but I do think it plays a role,” said Tom Wijman, senior analyst at market research group Newzoo.

John Poelking, senior gaming analyst at Mintel, added that young gamers were spending more of their own money on small in-game purchases, with data from pocket money app RoosterMoney showing that Robux is one of the top products which children are saving for this Christmas.

Mr Wijman emphasised that Roblox’s appeal, like that of Epic Games’ Fortnite, had transcended the pure gaming space. “It’s becoming an alternative place to hang out with friends . . . like another form of social media or perhaps even replacing social media,” he said, with popular games such as MeepCity boasting social role-play experiences similar to Second Life or Club Penguin.

Roblox’s status as a public square had been heightened by events such as virtual performances by rapper Lil Nas X’s concerts in November, which was viewed 33m times, according to the company. In April, a similar event by fellow musician Travis Scott on Fortnite was viewed more than 45m times.

Mr Warneford said that while Roblox still lacked polish in a number of areas, including its developer tools, these were “low-hanging fruit” for the company. “All of that is solvable [given] they managed to get [more than] 150m players every month without professionals making the games.”

The demand Roblox had received during the pandemic was also unlikely to evaporate, said Mr Wijman, based on data coming out of markets in Asia that have left or are leaving lockdown. “Perhaps the level of engagement . . . will fall a little when there are other things to do,” he said, “but we don’t expect a large decline when the world goes back to normal.”



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Darktrace/UK IPOs: shoes for every occasion

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Unpredictable nature of listing process means ‘greenshoes’ will remain required footwear



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Global IPOs begin 2021 at breakneck pace

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Listings on stock markets around the world are running at a record pace, with both deal numbers and values at their highest levels for the start of any year in at least two decades.

This year, 875 initial public offerings each raising at least $1m have been clinched globally, according to data from Dealogic that cover the last 26 years. That figure far outstrips the previous record set in the final months of the dotcom boom in 2000, when 592 companies raised $1m or more in floats over the same time period.

The deluge of listings has lifted IPO proceeds to a record-setting $230bn this year, well above the previous peak of $80bn set in 2000.

The boom stems largely from a spree of flotations of shell companies known as special purpose acquisition companies, or Spacs, which have accounted for almost half of the fundraising haul through IPOs in 2021. Spacs have no underlying business and instead raise capital to pursue a merger with a privately held business.

But the rise in IPOs also reflects enduring demand for global listings in a year when markets have rallied to new highs, with marquee names such as South Korean ecommerce company Coupang and US dating app Bumble making public debuts.

Globally, proceeds from IPOs in 2021 have already surpassed the full-year totals for 21 of the past 26 years.

Column chart of Number of IPOs, by type showing The number of companies going public has ballooned

“The numbers are encouraging because they’re evidence that people have renewed confidence that public markets are a good way to exit their business,” said Carlton Nelson, co-head of corporate broking at Investec. “It shows that they don’t have to tap into private capital despite it being easier and more efficient than it has been for a long time.”

The listings have been heavily tilted to the US, where Spacs had flourished before running into trouble in recent weeks. Roughly two-thirds of the $230bn of capital raised this year has been through listings in the country. China and Hong Kong have trailed in distant second and third places as the preferred choice for new listings, accounting for 8 per cent and 5 per cent of IPO proceeds, respectively.

Column chart of Global initial public offering proceeds ($bn) showing Companies and Spacs have raised $230bn through IPOs in 2021

Among the big debuts already this year have been SoftBank-backed Coupang, which along with selling shareholders raised $4.6bn, and TikTok’s video-sharing rival Kuaishou, which raised $6.2bn in its Hong Kong listing. Food delivery app Deliveroo also made headlines with its London IPO, which raised $2bn for the company and early backers but was ultimately panned by new investors.

Other large listings are already in the queue, including entertainment group Endeavor, Jessica Alba’s consumer goods business Honest Co and stock trading app Robinhood.

The data do not include direct listings, where companies decline to raise capital when they go public, meaning cryptocurrency exchange Coinbase’s blockbuster debut on the Nasdaq earlier this month is not counted in the figures.

Chris Nicholls, who leads Deloitte’s UK IPO and equity advisory team, said he believed the rest of the year looked promising for a spate of new listings.

“As you see economies emerging from lockdown, there should be a period of strong [economic] growth, which bodes well for this wave continuing for a while longer,” he added.

A key question is how much air will come out of the Spac phenomenon, which ballooned in popularity last year but has “slowed meaningfully” in recent weeks, according to strategists with Goldman Sachs.

Bar chart of Cash raised through initial public offerings, by company nationality ($bn) showing Roughly two-thirds of IPO proceeds have been raised in the US

Staff of the Securities and Exchange Commission earlier this month promised closer scrutiny of the revenue and profit projections from companies that use the vehicles to go public, and the number of new Spac listings has plummeted.

Still, the global economic reopening after the coronavirus pandemic is likely to prompt companies to pursue flotations, Investec’s Nelson said.

“IPOs have a long gestation period, it’s not just when the starting gun has been fired,” he added. “It’s really encouraging to see companies of all shapes and sizes starting those conversations now, even if it’s for a few years’ time in the future.”



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Pepco and Poundland chains target multibillion valuation in IPO

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South African conglomerate Steinhoff is set to raise up to 4.6bn zlotys ($1bn) when it lists its Pepco chain of discount retailers in Warsaw this month in the latest in a series of asset sales.

Pepco, which operates about 3,200 stores in countries including Poland, Romania and Hungary, as well as Poundland in the UK, said on Wednesday that shares in the offering would be priced between 38 zlotys and 46 zlotys.

In total, Steinhoff and members of Pepco’s management team will sell 102.7m shares or 17.9 per cent of Pepco to the public, valuing the company at between 21.9bn zlotys and 26.5bn zlotys. The final price will be set on May 14, and trading will begin on May 26.

A portion of shares will also be placed directly with some of Steinhoff’s lenders, following an earlier agreement between the conglomerate and its creditors.

Andy Bond, the former Asda chief executive who now runs Pepco, intends to sell more than 1m shares in the IPO, worth roughly €9.7m at the midpoint of the price range, though he will be subject to a lock-up period until the end of 2023 thereafter.

Bond said the company planned to open a further 8,000 stores “over the longer term”, but would also keep “a clear focus on costs and delivering additional efficiencies as we grow”.

Pepco’s listing is likely to be one of the biggest this year on the Warsaw exchange, which has seen a flurry of activity since Poland’s dominant ecommerce platform Allegro raised 9.2bn zlotys last year in the country’s largest initial public offering

Steinhoff will initially retain a stake of about 82 per cent, but the group is looking to sell assets to reduce debt after an accounting scandal in 2017. 

It has already sold Bensons for Beds, another UK retailer, to private equity group Alteri, and has an option to sell a further 15.4m shares in Pepco in the offering if investors show sufficient interest. Goldman Sachs and JPMorgan are advising on the IPO.

Pepco’s business heartland is in central Europe, but the group is planning to expand elsewhere on the continent, such as Spain, and is targeting earnings before interest, tax, depreciation and amortisation of more than €1bn within the next “five to seven years”.

In the year to the end of September, it reported sales of €3.5bn and underlying ebitda of €229m. Ebitda was almost a third lower than in the previous 12 months, as the pandemic forced stores to close across Europe.

Like many other discount retailers, Pepco does not trade online, as the small size of the purchases typically made by its customers makes the economics of ecommerce difficult.

The group said last week that sales had risen 4.4 per cent in the six months to the end of March, thanks to the opening of more than 200 new stores. However, on a like-for-like basis, sales were down 2.1 per cent.



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