A virtual gathering of Roblox employees on Wednesday marked its direct listing on the New York Stock Exchange.
Photo:
Roblox
For Roblox
RBLX 54.44%
waiting only seemed to make the heart of Wall Street bigger.
After postponing his direct listing from December, Roblox still bellowed out the gates on Wednesday. By the end of trading, the stock had risen 54% above the somewhat arbitrary reference price set by the New York Stock Exchange. It was also up nearly 8% from the opening price. The last four major companies to try direct listing: Slack
Spotify
Palantir and Asana – had an average decline of 2% from the opening price on their first days of trading.
The last three have since made significant gains. Slack is taken over by Salesforce
For Roblox, the challenge is to live up to what is now by far the most expensive rating for a video game publisher. The closing price values the company at about 25 times the midpoint of expected sales for the current year. Activision Blizzard
ATVI -1.29%
Electronic art
Take-Two Interactive
TTWO -2.22%
Zynga and the new public Playtika are currently on average a multiple of just under 6 times forward sales, according to FactSet.
That said, Roblox’s unique business model should justify a premium. The company offers its users a platform to design and run their own games, generating income through the sale of so-called Robux that players can use as in-game currency. That frees Roblox from the fickle cyclicality common in the video game industry. And investors have recently been taking a look at alternative ways to play in the video game space. Unity software
which provides tools and services to primarily video game developers, is up 46% since the first day of trading last year and is now valued at 27 times forward sales.
Roblox is consistently generating positive free cash flow – even before the pandemic boosted its operations last year. And the valuation looks a bit more reasonable when measured by the company’s bookings, which are expected to exceed $ 2 billion this year – about 40% more than expected earnings.
Roblox’s biggest challenge could be to show it can expand beyond its core audience; about two thirds of the user base is under 14 years old. Respondents to a recent investor survey by Bernstein Research give a 43% chance that Roblox will be able to achieve a similar level of market penetration with older age groups. At the current valuation, Roblox cannot afford to linger at the children’s table.
Write to Dan Gallagher at [email protected]
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