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 Roblox has seen remarkable sales growth, especially in the last two years. Revenues were driven primarily by the addition of active users to the Roblox platform. The remarkable growth recorded in the second quarter of 2021 was very positive, as this is our first attempt in North America to return to normal, but Roblox's growth continued.

However, it is important to mention RBLX's unique approach to revenue accounting.

Roblox reservations and revenue accounting

When a currency is exchanged for Robux (RBLX virtual currency), it is recorded as a "reservation". Revenue is recognized immediately when you exchange Robux for virtual items, and depending on the type of virtual benefit, there is an additional revenue accounting scheme. Items in the Roblox ecosystem can be "sustainable", avatar clothing or "useful", temporary improvements, sustainable items are identified for 24 months, while useful items are identified when we buy them. ~ 90% of Robux's spending on the platform is for "sustainable" items, so 90% of Robux's spending is recognized over a 24-month period. This is an important thing to note when looking at Roblox bookings as a total Robux real money conversion.

RBLX: Bar Graph of Reservations

Roblox Bookings (Roblox Investor Presentation)

Costs

Costs and expenses can be defined as revenue costs, which consist mainly of third party payment processing fees, development fees, which are amounts earned by developers and creators, personnel costs, infrastructure costs, reliability and security, in addition to other business costs, especially costs for research and development. and SG&A. The following is a breakdown of costs as% of revenue, where we see some dimensions that occur on a number of line items: G&A, S&M, Infrastructure, and R&D.

RBLX: Cost as a Percentage of Revenue

Roblox costs (Roblox files)

Free cash flow

In the last two years, RBLX has significantly accelerated the generation of free cash flow. Free cash flow at a lower level than the same standard cash flow from operations minus capital expenditures and purchases of intangible assets. It is positive to see the potential of RBLX's free cash flow with the first signs of success in the last 6-7 quarters.

RBLX: Free Cash Flow Chart

Roblox Free Cash Flow (Roblox Investor Presentation)

Evaluation considerations

Roblox is not very cheap. However, we did not buy Roblox almost for its potential, but how to get it and get the attention of young people. Technology companies have recently backed down by placing Roblox at a relatively attractive entry point near its IPO. While Roblox is an expensive stock, the recent retreat and potentially long-term makes it a unique value offering. Currently, RBLX trades almost 11x pre-sales and ~ 50x EBITDA.

Similar companies

It is difficult to find a list of truly identical Roblox companies. However, Roblox is a combination of play, socialization and a marketplace for creativity. The ability to get young people's attention is important, and we can see the same societies in a sense to understand the value of a 'gaming' or 'social' society itself. .

RBLX: Comparative Analysis of Companies

Analysis of companies related to Roblox (author's calculations)

Summary of work

Roblox is a unique and very attractive company. The current environment represents an opportunity to buy a future of attention for young people with metaversionary selectivity. Here is a summary of the dissertation:

Large and unique ecosystem with network effects. A common form of entertainment and social interaction for a whole generation of users (16 and less). Scale is a flywheel in which users become developers who create content that attracts new users.

Interference with the course of the game. RBLX has outsourced content to its millions of users and only paid for successful content. Focus on UGC risk development and offer a wider range of content libraries without significant R&D capital expenditures. Many levers to stimulate future growth. RBLX has invested in platform functionality, a responsive market can grow by adding more sophisticated games / developers. In addition, RBLX can expand into international markets, increase monetization and expand tools beyond gaming and human experience partners.

Attractive financial profile. A combination of high growth, high margins and cash flow generation. The accelerated growth of COVID-19 is expected to be somewhat sticky to user acceptance and will continue in the future. RBLX can provide a virtual universe or a "metaverse". RBLX can continue to build a virtual universe that includes entertainment, community, and e-commerce experiences.