A virtual meeting of Roblox employees marked the direct listing on the New York Stock Exchange on Tuesday.
Photo:
Roblox
For Roblox,
RBLX 54.44%
waiting just seemed to make the heart of Wall Street more amateurish.
After delaying its direct list from December, Roblox still came roaring out the doors on Wednesday. At the close of trading, the shares had jumped 54% above the somewhat arbitrary reference price set by the New York Stock Exchange. It also rose almost 8% from its opening price. The last four big companies that have tried a direct listing: Slack,
Spotify,
Palantir and Asana, in fact, averaged a 2% drop in their first days of trading, relative to the opening price.
The last three have made significant gains since then. Salesforce is acquiring Slack.
For Roblox, the challenge will live up to what is now the most expensive rating for a video game publisher. Its closing price values the company approximately 25 times the average point of its projected revenue for the current year. Activision Blizzard,
ATVI -1.29%
Electronic arts,
Take-Two Interactive,
TTWO -2.22%
According to FactSet, Zynga and Playtika, recently released, are currently multiplying an average of less than 6 advanced sales.
That said, Roblox’s unique business model should justify a premium. The company provides a platform for its users to design and run their own games, generating revenue by selling the so-called Robux so that players can use it as the game’s currency. This frees Roblox from the usual cyclical success and failure in the video game industry. And lately, investors have taken a look at alternative ways to play in the video game space. Unity software,
which provides tools and services primarily to video game developers, has jumped 46% since its first trading day last year and is now valued at about 27 times sales ahead.
Roblox has been generating positive free cash flows steadily, even before the pandemic boosted its business last year. And the valuation seems a little more reasonable when compared to the company’s reserves, which are expected to exceed $ 2 billion this year, about 40% ahead of projected revenue.
Roblox’s main challenge could be to demonstrate that it can expand beyond its core audience; approximately two-thirds of its user base is under 14 years old. Respondents to a recent survey by Bernstein Research made a 43% chance that Roblox could reach a similar level of market penetration with older age groups. According to his current assessment, Roblox cannot afford to be trapped at the children’s table.
Write to Dan Gallagher at [email protected]
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