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The market value of "the first stock in the metaverse" fell by 76%. Roblox's hot wind, is it cold?
In the treacherous world of capital and cutting-edge technology, it is often seen that some companies have gone through ups and downs.
In March last year, after Roblox, an American sandbox game platform based on the metaverse concept, was listed on the New York Stock Exchange, its stock price rose by 54.4% on the first day, and its market value exceeded US$40 billion. At that time, Roblox, known as "the first stock in the metaverse", caused a sensation in the entire capital world, because its valuation was only 4 billion US dollars in the year before its listing, which had doubled tenfold. Later, Roblox went all the way up, reaching a peak market value of $80 billion in November last year.
However, over the past year, Roblox has both joys and sorrows, but the worries are far greater than the joys. As of November 25, its market value was only US$19 billion, a 76% drop in one year, which can be called tragic. What worries capital even more is that, according to Roblox’s latest third-quarter financial report, its financial performance also declined.
The mighty unicorn that was once sought after by capital is now abandoned by capital. How long can the hot wind of the metaverse continue to blow?
The "money-absorbing ability" that causes concern
Through Roblox's third-quarter financial report, it can be found that its biggest problem is the decline in profitability.
First of all, in terms of revenue, revenue in the third quarter increased by 2% year-on-year to US$517.7 million. Although it is also growing, the revenue growth rate in the same period last year was 102%, and the growth rate this year has dropped significantly.
In addition, Roblox lost $297.8 million in the third quarter, three times larger than the loss of $74 million in the same period last year. At the same time, operating costs rose, including a 16% year-on-year increase in developer transaction fees, a 56% increase in personnel costs, and a 53% increase in infrastructure and security spending.
Overall, from the perspective of "opening up sources of income and reducing expenditure", Roblox's ability to increase revenue and control costs is declining, which will inevitably make capital vigilant.
To find the root cause of the decline in Roblox’s ability to absorb money, it is necessary to analyze its underlying business model.
Headquartered in San Mateo, California, Roblox itself is a UGC (user-generated content) sandbox game platform. However, unlike ordinary sandbox games, it does not create games itself, but mainly provides a platform for developing games And tools that allow players to make their own games to attract users. Players can get a share, which in turn motivates players to continuously produce new games, and the cycle repeats.
With this model, Roblox has attracted many users and formed a huge economic system. The key point is that its development tool Roblox Studio is very easy to use, even a child under the age of 12 can use it to develop a 4399-style small game. Therefore, the main user group of Roblox is young people-the data released by Roblox in 2021 shows that the largest proportion of users is the Z generation.
More importantly, the games created by these players can be placed in Roblox to earn a lot of income. There are already elementary school student developers who have reached the level of monthly income of over 10,000 US dollars. Earlier, the creators of the most successful games on Roblox could earn as much as $250,000 a month, and some creators even earned more than $3 million in 2017.
Players make money by creating, so what about Roblox itself? In fact, there is a "Bookings" (pre-sale service revenue) in the financial report, which reflects Roblox's real earning power. It refers to the sum of confirmed sales and deferred revenue obtained by the Roblox platform when players purchase the game token Robux in exchange for clothing, pets and other game products.
The financial report shows that Roblox’s Bookings in the third quarter was US$701.7 million, a year-on-year increase of 10%, while the same period last year increased by 28% year-on-year, and the growth rate dropped significantly.
The reason behind this is that in the past few years of the global epidemic, consumers have begun to save money and spend their consumption on necessary daily necessities, thereby reducing their spending on games.
For example, the financial report shows that in the third quarter, Roblox’s DAU (daily activity) was 58.8 million, a year-on-year increase of 24%, and the growth rate has declined from 31% in the same period last year. At the same time, the average Bookings revenue per DAU was US$11.94, a year-on-year decrease of 11%. This indicator has been well below the level of the same period last year in every quarter since this year.
The financial data of Roblox is worrisome. To put it bluntly, under the situation of insufficient overall consumption motivation, the growth rate of the number of active players is not as fast as last year, and players are even less willing to buy their hands.
A breakout from worries
Of course, while worrying, Roblox also has something remarkable.
In terms of income generation, it is also trying to break through in all dimensions.
In terms of creators, the number of developers has increased, and the proportion of top content contributions has decreased.
In the third quarter, the number of developers with more than 100,000 hours of experience in the developer community reached 1,520, an increase of 54%; the number of developers with more than 1 million hours of experience reached 532, an increase of 47%. At the same time, the revenue contribution of the top 1,000 content has dropped from 90% a year ago to 85%.
This means that more new forces have poured into the developer community, which can attract more users through fresher games and expand the transaction volume on the platform, thereby driving up Roblox's revenue.
Of course, this will be a long-term process, and it will not work in the short term. As Clark Lampen, vice president and digital games analyst at BTIG, said: "They're willing to take a little pain in the short term for long term gain."
In terms of short-term benefits, Roblox is currently anchoring NFT and advertising respectively.
Today’s Roblox is strongly linked to the metaverse, such as gradually involving the decentralized ecosystem, and will launch “limited items” similar to NFTs within the platform. These "items" will be sold on the Roblox marketplace, bringing in lucrative revenue.
"They are taking deliberate steps to bring Web3 functionality into their products," Lampen said when analyzing Roblox's NFT moves.
In addition, Roblox is also planning to increase advertising revenue.
In the Roblox ecosystem, if developers want to gain more exposure and profit for their games, they need to recharge for publicity. For Roblox, it creates an important source of income called "advertising".
Today, Roblox has launched a relatively mature advertising system for developers for game promotion. There are three main forms-banners (banners), skyscrapers (vertical banners), and rectangles (rectangles). The profit model is to use auctions. The exposure rate (the number of times displayed) is determined by the bidding system of the time period. The bidding unit is Robux. The duration of each round of advertising is 24 hours. Each advertising form has an independent bidding system.
In addition to being developer-oriented, Roblox also focuses on many brands. It tries to let Gucci, Ralph Lauren, Chipotle and other brand partners place advertisements in their metaverse to generate more revenue.
Previously, Roblox had implanted experiential games for the toy brand "LOL". Statistics show that LOL's official surprise party experience has successfully attracted potential users. The average game time per capita is 15 minutes, bringing quite good brand exposure.
How long can the hot wind of the metaverse continue to blow?
In the past few years, the hot wind of the Metaverse has hit, giving birth to unicorns like Roblox, and also brought a wave of capital boom.
It's just that this year, the hot wind has revealed bursts of coolness.
The most famous company related to the Metaverse today is Facebook. Last year, its CEO Mark Zuckerberg stated that Facebook would transform from a social media company to a metaverse company, and in October last year, it changed the name of Facebook’s parent company to Meta, which seems to be determined to go on the path of the metaverse in the end.
However, a year has passed, and the Metaverse did not allow Meta to bring much increase, but instead let it fall into a quagmire.
Not long ago, Meta released its financial report for the third quarter of fiscal year 2022, and then its stock price plummeted by nearly 20% to $114, the lowest since 2016.
In this worrying third-quarter report card, Meta’s revenue was US$27.71 billion, a year-on-year decrease of 4%; net profit was US$4.395 billion, a year-on-year decrease of 52%, the fourth consecutive quarter of decline, which was the first time since the fourth quarter of 2012 .
Focusing on the Metaverse business, Reality Labs, the core project of the Metaverse, recorded a revenue of US$285 million in the third quarter of this year, a year-on-year decrease of 49%, which was lower than market expectations of US$400 million. Operating loss was $3.67 billion, compared with a loss of $2.63 billion a year earlier. In the first three quarters of this year, the Reality Labs department has accumulated a loss of US$9.4 billion, while last year’s annual loss exceeded US$10 billion, which means that this year’s loss will be even more.
On the one hand, due to the decline in revenue and profits, and on the other hand, the loss of Metaverse’s business has intensified. Meta had to announce layoffs recently, involving 11,000 employees, accounting for about 13% of the company’s size.
Meta's unsatisfactory performance also caused capital dissatisfaction. Brad Gerstner, a Meta shareholder and Altimeter Capital fund, published an open letter criticizing Zuckerberg and formulating a three-point plan, including "limiting investment in the Metaverse to no more than $5 billion per year."
As the head company in the Web2 world, Meta is extremely difficult to deploy in the metaverse, and the situation of other relatively weak metaverse companies is not optimistic.
Not long ago, Unity released its 2022 Q3 financial report, showing that in the third quarter, it achieved revenue of US$322.9 million, a year-on-year increase of 13%, which was lower than expected; the operating loss reached US$239.6 million, which was significantly larger than the US$126.8 million in the same period last year.
Like Meta, Unity, and Roblox, there are not a few Metaverse companies in financial quagmire. In fact, Metaverse is now more in the early stage of concept realization, requiring a lot of investment in infrastructure, underlying architecture, and core technology, and the cost pressure is quite high. This is also an important reason why most Metaverse companies are not financially optimistic.
Matthew Ball, principal analyst at Canalys, said that most metaverse projects in the commercial space will be shut down by 2025 because "people are grappling with the financial costs of today's real world".
There is not much time left for those players who are short on food and grass.
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