Roblox RBLX trades for first time after direct listing

The opening public price will be determined by buy and sell orders collected by the NYSE from broker-dealers. SAN MATEO, Calif.–(BUSINESS WIRE)–
Roblox Corporation (“Roblox”) announced today that it plans to file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) for a proposed direct listing of its Class A common stock. The number of shares of Class A common stock to be offered by the Company’s stockholders has not yet been determined. Roblox intends to commence the direct listing following completion of the SEC review process, subject to market and other conditions.

Direct listings enable companies seeking to go public to essentially cut out many of the complicated rites of the IPO, going straight to shareholders by listing their shares on an exchange. Roblox tapped Global Trading Systems to serve as its designated market maker for its forthcoming direct listing, according to sources familiar with the matter who spoke to Insider in January. The move not only marked the first direct listing for GTS but also broke Citadel Securities’ streak of handling all the previous major direct listings. Roblox Corp. shares rallied Wednesday on their first day of trading on the New York Stock Exchange, closing up more than 50%.

In that document, Roblox disclosed the last several years of its earnings and gave both the rest of the industry and would-be investors a look at the company’s finances. Roblox’s highest expense is developer exchange fees, which accounted for roughly 27% of total expenses in the first nine months of 2020. The $520 million raise led by Altimeter Capital and Dragoneer Investment Group is a significant cash influx for Roblox, which had previously raised just over $335 million from investors according to Crunchbase. The Investment Group of Santa Barbara, Warner Music Group, and a number of current investors, also participated in this round. Yonathan Raz-Fridman, the CEO of Supersocial, believes enough in Roblox that he has created a development studio to make games for Roblox.

San Mateo, California-based Roblox operates a popular videogame app of the same name that had more than 32 million active daily users as of 2020. Users can create their own three-dimensional games atop the company’s infrastructure without writing any code and make them available to others. Roblox reported revenue of $923.9 million and a loss of $257.7 million in 2020, compared with revenue of $508.4 million in revenue and a loss of $71 million in 2019, and revenue of $325 million and a loss of $88.1 million in 2018. The company seeks to grow out its business by retaining its pre-teen users as they grow older while appealing to new users already in their teens or young adulthood. Data from Sensor Tower said the average U.S. daily active user was spending 100 minutes a day on the mobile app during peak months of 2020. Use has retreated to about 70 minutes a day in the first quarter.

But the direct listing, originally slated for February, hit another snag due to SEC scrutiny over how Roblox recognizes revenue, Reuters first reported on Jan. 28. Prior to that, Morgan Stanley had also advised Spotify and Slack on their direct listings, too. Roblox’s plans to switch to a direct listing was reported earlier by Reuters. For the nine months ended Sept. 30, Roblox had a consolidated net loss of $197 million on revenue of $614 million.

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It’s not just supply and demand on the retail side, it’s supply and demand on all sides. If you’re paying $60-something for Roblox shares, that means that the big investors are also willing to pay those prices. The New York Stock Exchange set a reference price of $45 for the direct listing of Roblox Corp., the online games company that originally planned to go public via a traditional initial public offering. With the recent rule change, direct listings are even more attractive than before. Prior to the rule change, direct listings still allowed companies to save the money paid to underwriters in an IPO, but they couldn’t raise new funds. With the rule change, companies can undergo a direct listing, raise capital, and still save money.

Roblox is far from the only major game company to go public recently. Most notably, game engine maker Unity kicked off its own IPO late last year. Although banks don’t underwrite shares as they do in an IPO, they do advise the company on the listing.

Roblox’s shares will begin trading Wednesday without the company raising any capital. As with previous direct listings, the company won’t issue new shares at a set price. Instead, current investors can simply begin selling shares based on demand when trading opens. In late January, Reuters reported that Roblox had to delay its IPO due to SEC scrutiny over how it recognizes revenue. Shares began trading on March 10 at $64.50, a 43% increase from the price of shares sold on private markets in January.

Right now, Roblox has more than 1,000 people, including more than 500 that were hired during COVID-19. “We headed into 2020 with strong organic growth which was further bolstered by social distancing restrictions,” Michael Guthrie, Roblox’s finance chief, said in the guidance statement. “As those restrictions ease, we expect the rates of growth in 2021 will be well below the rates in 2020, however, we believe we will see absolute growth in most of our core metrics for the full year.”

Subsequently, Roblox told employees that it was working with its advisors to find a more “market-based relationship” between investors and companies, Reuters reported at the time. Roblox has been investing heavily in growth initiatives to keep up its sales momentum. That showed up in the company’s direct listing prospectus as a net loss of $253.3 million for 2020, more than triple the $71 million loss it logged the year prior.

Disadvantages, just real quick, and then I’ll shut up and let Brian talk. Like I said, it democratizes the capital-raising process and things like that, but it’s also unpredictable for the company. If the company needs to raise $100 million, they don’t know how many shares to sell because the price is going to be hammered by supply and demand. It can be difficult to get a lot of interest for direct listing because like I said, there’s no roadshow, there’s no buildup toward it. If the company isn’t widely known, typically, these are only used by big established brands. These are big companies that people are already interested in investing in.

While this trend is understandable from the company perspective, it also means that retail investors miss much of the growth in these companies. When companies in the late stages of development undergo an IPO, retail investors are mainly helping early sophisticated and institutional investors cash out with a lot of the gains. Clearly, the IPO process needs to change, or we will be seeing a lot more direct listings and/or delayed IPOs in the future. Roblox went public through a direct listing, following the lead of other tech companies including Spotify, Slack and Palantir. Instead of raising fresh capital in exchange for new shares, Roblox allowed existing shareholders to sell immediately, without being subject to a lockup period.

A Roblox investor’s view

Now, on direct listing day, Baszucki said he was satisfied with the early results. The company’s eponymous “Roblox” game is the biggest mobile game of 2020 in the U.S., in terms of revenue, according to data provided by Sensor Tower. It surpassed “Candy Crush,” which had been the top game for the https://business-oppurtunities.com/3-killer-ways-to-ignite-your-affiliate-commissions/ past 3 years. Music streaming service Spotify Technology (SPOT) went public through a direct listing in 2018 and Slack Technologies (WORK) followed in 2019. Roblox had a suggested price point of $45 a share that was set by the New York Stock Exchange, where Roblox trades under the ticker RBLX.

• Even if the company is raising capital, this is an interesting point, the company’s interests are aligned with the public.
• Only four have happened before this one, but they’ve already attracted high-profile support from the likes of venture capitalist Bill Gurley and others.
• Data from Sensor Tower said the average U.S. daily active user was spending 100 minutes a day on the mobile app during peak months of 2020.
• With the rule change, companies can undergo a direct listing, raise capital, and still save money.

In an IPO, underwriters determine a price that the company is going to sell its shares to the public for. The shares at the IPO price, anyone who tried to get in on the Airbnb or DoorDash IPOs, I don’t know if Brian owns shares of either of those, but if you wanted to get in at the IPO price, you were pretty much out of luck. The shares at the IPO price are generally sold for large investors, leaving retail investors to buy on the open market at whatever supply and demand allows them to do so once the shares begin to freely trade. In a direct listing, because you’re not selling any new shares, everybody has an equal opportunity to buy. Once shares are available for public trading, you might pay more than the IPO or reference price, but so will the big investors who want to get in.

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The public debut of Roblox has been anticipated since word of an IPO began circulating in October. Roblox had planned to go public late last year through a traditional IPO. The company delayed its offering after Airbnb and DoorDash debuted and underpriced their shares, leading to a huge discount for new investors. Roblox opted to go the direct listing route and raised a smaller funding round in January to minimize dilution. Gurley and some other VC’s see the direct listing as being one way to remove some of the machinations by which underwriters and their pals at institutional investors enrich themselves through the IPO process.

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The event isn’t an initial public offering, as the San Mateo, California-based company decided not to raise money for the company itself. But the direct listing tells the world just how valuable the public markets believe the company has become with its 32.6 million daily active users. As Brian mentioned, the shares are trading for a whole lot more than that right now. The lowest that any Roblox shares have actually traded for on the public markets since it went public yesterday, has been $60.50.

The gaming startup had initially planned an IPO in 2020, but after the major first-day pops of DoorDash and Airbnb, the company leadership reconsidered their timeline, according to a report in Axios. Those major day-one share price pops left significant money on the table for the companies selling those shares, an outcome Roblox is likely looking to avoid. Today, the company also announced that it plans to enter the public markets via a direct listing. Roblox Corp. has joined the ranks of closely held companies turning to public markets to support growth. The San Mateo, Calif.-based videogame provider’s stock started trading March 10 on the New York Stock Exchange under the symbol RBLX. The shares are trading through a direct listing, bypassing the traditional route of an initial public offering.

Roblox, the platform for Lego-like user-generated games, went public today in a direct listing, where employees and investors finally get a chance to sell shares on the market. The initial price was far higher than the reference price of $45 a share, as the first trade was about $64.50 a share, giving the company a valuation of $41.9 billion. The valuation increase is a positive sign for other tech companies considering to go public via a direct listing. In a traditional initial public offering, a company hires underwriters to generate interest among institutional investors and help set its stock’s initial trading price.

That could be good or bad for investors in the company, it just makes it unpredictable, and they still have the same disclosure requirements as an IPO. They still have to produce financials, really open up the books. On the next slide, I just broke down some of the pros and cons of direct listings. Some of the advantages, they are cost effective for the company. They don’t have to hire underwriters, they don’t have to do an IPO roadshow. They have to hire some advisors, but it’s generally a much more inexpensive process.

How Direct Listings Work

Only a handful of companies have done direct listings, including Peter Thiel’s Palantir Technologies Inc. and software company Asana Inc. in September. Music streaming service Spotify Technology SA went public through a direct listing in 2018, and Slack Technologies Inc. followed in 2019. IPO pops have drawn criticism from some who say the traditional initial public offering process might not be the best bet for every company. In the past, Morgan Stanley has been the dominant advisor in the direct listing space, having been named lead financial advisor to the market maker on multiple direct listings, including those for Palantir and Asana. Both of those direct listings took place at the end of September. The company also then raised $520 million in a Series H round led by Altimeter Capital and Dragoneer Investment Group, bringing its total financing to around $855 million.

Unlike in an IPO, companies have not traditionally raised any money through direct listings. Mobile gaming company Roblox (RBLX 4.66%) recently went public, but opted not to take the traditional IPO route. And despite the wave of SPAC IPOs over the past year or so, Roblox didn’t use that method either.

Roblox’s strong growth appears to have convinced investors to overlook its lack of profitability. The $45 billion-plus market capitalization the company received today is a substantial premium over its most recent private valuation of $29.5 billion. The company pivoted to plans for a direct listing from a planned IPO back in January after getting a fresh venture-capital infusion of $520 million that valued the company at $29.5 billion.

The reference price is just a starting point for an auction, in other words. Think of it as like the reference price is what the market makers are putting out there like an auctioneer. As supply and demand dictates, it usually goes up from there. By the time Roblox actually opened, it was in the 60s, so nobody paid $45 for it.