Can anyone give their input on their long-term outlook for Roblox?
I think I lack the knowledge and experience to provide my opinion on Roblox. However, I still want to share my novice understanding because that seems to help start discussions on Reddit. Please feel free to critique my thoughts so I can refine my understanding, or completely ignore them. I have a small Long Position but realized I am not confident enough, and therefore here I am in this sub.
Here is my knowledge of Roblox:
Roblox has a large and active user base, particularly among children and teenagers (with 71.5 million daily active users and over 15 billion hours of gameplay in Q4 of 2023). As far as I know, it is the primary platform for user-generated content games, other than Unreal Editor for Fortnite (UEFN). Given the high level of engagement and limited competition, Roblox has a lot of potential. On the bullish side, there seem to be a lot of diverse directions Roblox could go.
A straightforward one is that the following virtuous cycle could lead Roblox to be THE go-to place for gaming.
- Greater platform user base, technical capabilities, and revenue tools…
- …attracts devs with more sophistication and capital…
- …which leads to better content…
- …which leads to more players and player spend…
- …and so the cycle repeats
Another best case scenario could be where Roblox emerges as the primary social hub for the new generation. Decades ago, kids would hang out at malls, but in recent years, social interactions have shifted to digital spaces like Snapchat, Instagram, and Facetime. Roblox has already become a popular destination for young kids, and if they continue to develop their platform, they could establish themselves as the go-to social gathering place for young people (and as they age up, all people).
And maybe, maybe, in many years, Roblox could be like Ready Player One’s metaverse.
Other than the platform itself growing and evolving, Roblox could also work to become more profitable or generate more revenue per DAU which would increase valuation. I don't know how or if that's likely but yeah. And its also just very valuable to hold the attention of the majority of our young generation, and there has to be ways to capitalize on that further.
What I am worried about is:
New direct competition. There is a possibility of UEFN overtaking Roblox as the top UGC gaming platform. UEFN has advantages such as a better game engine/higher fidelity, Fortnite itself, which works wonders in retaining users and driving new users to the platform, and the ability to make riskier decisions as a private company.
Another worry I have is anecdotal input from a small professional game studio that recently shut down after a few years of trying to make Roblox games. They believe that there is little viability for building a game studio on any UGC game platform right now (not just Roblox but also UEFN).
Here are their reasons:
- The ease of moving between games on Roblox makes it hard to retain players, even for high-quality titles.
- Roblox lacks basic developer tools like attribution for paid user acquisition, making it difficult to measure marketing ROI.
- The only games that seem to succeed on Roblox either launched years ago, rely on gimmicky viral mechanics, or use unlicensed IP (which they estimate drives 40%+ of Roblox's revenue).
- Roblox doesn't seem to have a clear strategy for cultivating a healthy developer ecosystem through thoughtful policies, algorithm design, or tech infrastructure.
They believe Roblox is leaving significant money on the table due to their lack of platform strategy.
Other worries are
- Recent litigation concerns.
- Roblox's steady quarter-to-quarter net loss without any near-term plan for positive net income could result in a drop in valuation if monetization doesn't improve, leading people to believe that its current premium multiple is not justified even with growth in mind.
Overall, I believe Roblox has a lot of raw potential given its user base and positioning, but still has much to prove in terms of execution. Can it build a robust economy for developers and brands? Improve discoverability and retention for high-quality games? Extend its demographic and use cases beyond kids' gaming? Fend off UEFN and others?
Anyway, I would love to hear your comments/personal analysis.
