A virtual gathering of Roblox employees who marked direct listing on the New York Stock Exchange on Wednesday.
Photo:
Roblox
For Roblox,
RBLX 54.44%
waiting only seemed to grow the affection of Wall Street.
Having delayed its direct listing from December, Roblox still roared out of the doors on Wednesday. At the close of trading, the stock had risen 54% above the somewhat arbitrary reference price set by the New York Stock Exchange. It was also up almost 8% over its opening price. The last four major companies to test a direct listing: Slack,
Spotify,
Palantir and Asana – Actually averaged a 2% decline in their first trading days, relative to the opening price.
The last three have made significant gains since then. Salesforce is acquiring Slack.
For Roblox, the challenge will be living up to what is now the most expensive valuation for a video game publisher. Its closing price values the company at about 25 times the midpoint of its projected income for the current year. Activision Blizzard,
ATVI -1.29%
Electronic arts,
Take-Two Interactive,
TTWO -2.22%
Zynga and the recently public Playtika currently average multiples of just under 6 times forward sales, according to FactSet.
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 through the sale of the so-called Robux for players to use as in-game currency. That frees Roblox from the unpredictable cyclicality common in the video game industry. And investors have lately been realizing the alternative ways of playing in the video game space. Drive software,
which provides tools and services primarily to video game developers, has risen 46% since its first trading day last year and is now valued at about 27 times future sales.
Roblox has been generating positive free cash flow steadily, even before the pandemic boosted its business last year. And the valuation seems a bit more reasonable when compared to the company’s reserves, which are projected to top $ 2 billion this year, about 40% above projected revenue.
Roblox’s main challenge could be to demonstrate that it can expand beyond its core audience; About two-thirds of its user base is under the age of 14. Respondents to a recent investor survey by Bernstein Research put a 43% chance that Roblox can achieve a similar level of market penetration with older age groups. With its current valuation, Roblox cannot afford to get stuck at the children’s table.
Write to Dan Gallagher at [email protected]
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