Is Roblox the next Facebook as it Pivots into Advertising?

What is Roblox on Ads?

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A deeper dive into the future of Roblox

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At heart I’m a futurist, and we like to think of the evolution of companies and startups. The reality is, the kids on?RBLX?-1.33%↓?Roblox are growing up as more are now above the age of 13.

If Microsoft is a genius in how it has consolidated and acquired?gaming companies in recent?years, Roblox is an Alpha gen paradise of peer hang-out, creativity, gaming coding and monetization via a digital currency.

In Earnings in August, 2022, Roblox reported 52.2 million average daily active users. Think about the potential there for a moment.

What Minecraft Could Have Been

When Microsoft acquired Minecraft in 2014, if only it had built a Roblox itself. Minecraft has 114 million global users apparently, but it has nothing like the community that Roblox has.

The One True Gaming Mini-Metaverse

If GenZ have Snap and TikTok, Alpha may have Roblox as their own. Roblox has now announced that it will be testing the ad format with some developers and advertisers by the end this year ahead of a broader rollout in 2023.

TL;DR

• Roblox currently derives almost all of its revenue from in-app purchases using the virtual currency Robux.
• The company is entering the online ad market at a time of industry turmoil, with Facebook and Snap struggling to adapt to Apple’s iOS privacy change.

Roblox which has a market cap of $27 Billion is unique with a potentially huge future.

Roblox with Advertising could be a different kind of beast. And I want to debate this.

Think about it, Roblox rode a wave of pandemic-era growth to a?seven-fold value increase, an exploding user base, and a wildly popular Lil Nas X concert with tens of millions of attendees. Roblox just has another level of swag for?what the Metaverse could be.

Of course Roblox will one day have a VR component. But is could reinvent how advertising and Ads work in games and communities.

RBLX?-1.33%↓?Roblox has built a userbase of over 52 million people by providing a gaming and entertainment platform that’s mostly been targeted at kids. Now the company wants advertisers to join the party.

Roblox had revenue of $639.9 million in its latest earnings and its potential to lure older teens is rather high with its future plans. If you think about it, this also is about the Creator economy of game creation. Roblox’s ability to become a billion-person platform with thousands of creators supporting themselves on it will depend on whether it can translate these new features into growth and profit.

It’s this significant potential that makes me bullish on the platform’s potential future trajectory even as Meta’s bet on the Metaverse seems a bit a case of wishful thinking as its user-base has aged considerably in the last decade and Apple’s rule changes have disrupted its advertising business.

Roblox thus has the chance to become something special. You can read about Earnings details for Q2?here.

In an era where Netflix is getting into gaming Ads, Meta thinks its a Metaverse company, that Roblox a gaming platform for young people getting into Ads is the most natural thing to do in order to grow even faster.

Roblox can Reinvent Ads

The company generates revenue from sales of its virtual currency called?Robux, which players use to dress up their avatars and buy other premium features in the games. It’s in many ways what Facebook wishes it could become, but it simply doesn’t have the youthful user base any longer.

The new ads system, meanwhile, is a way for brands to advertise across Roblox experiences through interactive billboards, posters, and other surfaces, like kinds of Portals.

3D Ads

Working initially with a group of selected companies and developers, the new ad system will allow creators to drop 3D ads into their own experiences — like a billboard in a sports stadium or on top of a cab in a game — and to get a cut of the ad revenue.

Adding immersive ads has been a “dream” for Roblox for 15 years, Chief Executive Officer Dave Baszucki said at the company’s developers’ conference on Friday, according to Bloomberg.

The thing is that Roblox is already pretty immersive to the Alpha cohort generation.

Roblox has a long runway to evolve with its growing and aging user base. More than 50 percent of our users are 13 plus, and their fastest growing demographic is 17 to 24. This is platform utopia for Roblox as it matures. Few realize that Roblox was founded back in 2004, Roblox was actually first released in 2006.

RBLX?-1.33%↓?The stock reached $23 in May, and that's where I would be looking to buy the company again. The launch of 3D Ads in 2023 will be interesting to watch. It's as monetizable a platform model for young people that we have seen in recent memory.

It’s also more intense a obsession than people had with Netflix. Users spent more than 11 billion hours engaged in Roblox during the second quarter.

Brand Portals

The Verge was clever to note: in addition to ads within user-created experiences, brands will also be able to have?“portals” that act like a tunnel between games, taking players to a new branded area in Roblox like a shoe store or a coffee shop. The company will begin testing immersive ads by the end of the year, with a full launch planned for next year.

I think growth in 2023 could be good and the company is a long-term Metaverse native company.

Ads in gaming and on gaming platforms is really the future. Even as the personal brand of gaming creators within Roblox will evolve as well.

The company also offered a peek into the third quarter. It said July daily active users hit a record high of 58.5 million, up 26% year over year.

The 2021 Investor Day video is revealing:

The stock since its 2021 highs have been very volatile and I expect the stock price to correct quite a bit. However the long-term and young age demographic is very valuable in terms of entertainment, in-game currency and eventually, advertising revenue.

Roblox has a pretty amazing transactional economy with an unusually immersive gaming and peer-culture for Tweens experience. Now if they can replicate that for the 14 to 21 category it could be incredible. The potential for VR, NFTs and even TikTok is pretty outstanding.

Roblox is also gaining B2B experience here. Roblox has had lucrative partnerships with the likes of Ralph Lauren, Chipotle and other top companies to offer users branded games, virtual concerts and items.

From its pandemic highs though expectations have had to set back to more realistic terms. In August, Roblox reported second-quarter financials that missed on both the top and bottom lines, and revenue growth slowed to 30% from more than 100% a year earlier. For this reason, it’s important to buy Roblox’s stock on discount and not get in when the hype cycle is so fresh, like after its recent conference.

You can cherry pick data and think Roblox is doing amazing:

• Daily Active Users (DAUs) totaled 53.3 million in June 2022, up 23% year over year versus 50.4 million DAUs in May, up 17% year over year.
• Hours Engaged (Hours) totaled 3.924 billion in June 2022, up 20% year over year versus 3.571 billion hours in May, up 10% over May 2021.

But the technological challenges they face and to create value for older audiences are very complex. Amusing kids under 13 is one thing, and creating a product for teenagers and Ads is quite another.

At the start of 2022, the CEO said that the company has “many opportunities to increase monetization” and he cited advertising and 3D immersive shopping as potential areas for growth. Social commerce is a huge possibility for Roblox’s future, especially in an era where its failed by and large on Instagram, YouTube and web2 platforms. Roblox could be said to be a 2.5 platform, in my estimation.

Advertising in the metaverse is as of yet unproven, but brands are already eyeing it as the next place to target potential customers. Roblox has a user base that can be catered to in new and experimental ways.

The 3D advertising, better known as "immersive ads", experience will only reach audiences aged 13 and above, Roblox said. Roblox understands the ethics involved with children and teens, and how their experiences need to be different.

The Company operates a human co-experience platform or Roblox Platform, where users interact with each other to explore and develop, user-generated and 3D experiences. How will that translate into the world of VR and AR, rather well I imagine.

Second Quarter 2022 Financial Highlights

1. Revenue was $591.2 million, up 30% year over year
2. Net cash provided by operating activities of $26.5 million
3. Free cash flow was $(57.3) million
4. Bookings were $639.9 million, down 4% year over year
5. Average Daily Active Users (DAUs) were 52.2 million, up 21% year over year
6. Hours Engaged were 11.3 billion, up 16% year over year
7. Average Bookings per DAU (ABPDAU) was $12.25, down 21% year over year

What amazes me about Roblox is how efficient they are at revenue generation even BEFORE getting into advertising.

Future Acquisitions

If Roblox got acquired, I’d expect it to be to Amazon, Apple, ByteDance or Microsoft. All of these companies would be lucky to own such a platform, although if Roblox had been open to being acquired, it would have likely already done so.

RBLX?-1.33%↓?is worthy of more study.

Roblox CEO David Baszucki has invested a lot in Roblox, so like Snap, they are unlikely to want to exit without exhausting all avenues of independent growth.

Game Developer Creator Economy (GDCE)

Few understand the context of the game developer creator economy. But it is going to be something truly incredible. In 2020, Roblox introduced premium payouts, which pay game developers based on time spent in the experience they’ve created. Roblox says it paid out $538.3 million to creators in 2021, and over 2.7 million were earning Robux in June.

This is where Microsoft would be especially interested to acquire Roblox. But Amazon desperate for a Gaming studio success or future, would also be willing to spend a lot of money on it.

Roblox has been talking about introducing advertising for months as a way to boost revenue from games that are largely free to play. The company generates income through the sale of in-game currency, called Robux, and takes a cut from money spent within games on user-generated content.

The business model of Roblox could be the intersection of the past and the future, of platforms, creators, developers and immersive experiences. There’s not a whole lot of competition for what it has been able to establish and this means it’s a first-mover especially among its younger demographic that has a longer potential customer life-cycle as Roblox continues to evolve for its older users.

Roblox is bullish on the future because of its investments in its employees, server capacity and global data centers. Roblox has future plans and they are starting to take shape. What could it be by 2030? It could become very profitable.

However this is no Web3 ownership economy model. Currently, after app store fees and Roblox taking its own cut, creators are left with?around 30 percent?of revenue from in-app purchases — significantly lower than on other platforms. Some creators say that despite pouring time into developing games, it was?difficult to make a profit, especially for the millions of kid developers who start out doing something they love only to get burnt out trying to make their game successful.

Roblox is an unusual take on user-generated-content and the future of gaming and teaching young people about entrepreneurship and how to code. You might even consider it is an Ed-Tech platform in many regards. It’s shaping the future of developer and gaming culture.

Not Just Children’s Games Any Longer

Children still make up a large portion of Roblox players — just 52 percent of users are over 13 years old,?according to?Fortune.

The struggles Roblox will face could also shape what the Metaverse actually becomes for young people. Roblox has been doubling down on the "metaverse", a virtual space where players can do everything from hanging out and chatting to shopping and attending concerts.

Roblox, Epic Games, Unity and so many others are building a future that’s more than just gaming but about immersive experiences online. However Roblox has the consumer entertainment based platform of user-generated-content and that’s one of the most valuable things possible, and worthy $Billions more than Roblox’s stock will be worth when it goes on discount.

Think long and hard about what we’ve discussed here, investing in Roblox in 2022 could be like investing in Facebook in 2010.

I recommend waiting for the stock price to come down at some more pessimistic moments in its growing pains and then holding for 10 years or longer.

If you want to follow my insights on stocks, investing and stock trading including buy alerts and so forth, you can do so?here.

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