Roblox was most recently valued at $4bn when it raised $150m in February

Roblox, the video game platform loved by preteens, earned close to $1.2bn from selling virtual currency to its users in the first nine months of the year as gaming surged under Covid-19 lockdowns.

The figure was included in a share prospectus for the company published on Thursday evening, where the company laid out its case for investors ahead of an initial public offering.

What the company labels “bookings” — sales activity that is not yet fully recorded as revenue — was almost entirely composed of virtual currency purchases. The $1.2bn figure represented a 171 per cent increase from the same period in 2019.

Roblox recognises revenue from sales of the digital currencies, known as Robux, over the average lifetime of a playing user, which it currently estimates at 23 months.

Enforced time indoors has lifted the entire gaming sector, but Roblox has enjoyed conspicuous success. It has also drawn concern from parent groups about its potentially addictive nature and offensive content on the platform.

Roblox listed its ability to “provide a safe online environment for children” as a risk factor in the prospectus.

In the first nine months this year, the company boasted 31.1m daily active users spending 22.2bn hours on its platform. This year it overtook Minecraft, the video game acquired by Microsoft in 2014, in active monthly users.

Yet losses have expanded along with revenues. The Roblox prospectus reported net losses of $203m in the nine months to 30 September on revenues of $589m, compared with losses of $46m on revenues of $350m in the same period last year.

Roblox said it had increased spending on infrastructure, trust and safety and research and development, and was paying more app store fees because more of its players were on mobile phones.

Roblox said it would raise as much as $1bn in its public offering, with Goldman Sachs, Morgan Stanley and JPMorgan acting as lead underwriters.

Its valuation at IPO was not clear, but the start-up was most recently valued at $4bn when it raised $150m in a funding round led by venture capital group Andreessen Horowitz in February.

Roblox’s success has been rooted in its model as the “YouTube of the gaming world”, said Matthew Warneford, a founder of children’s digital consultancy Dubit. Rather than creating games, Roblox offers developers tools to build their own game worlds.

“That allows for innovation in a way that can’t exist [in traditional gaming] because of the cost it takes to compete,” he said. “All the big studios are . . . investing tens of millions into a game, hopefully having a big success . . . [whereas] it costs Roblox nothing to bring a new game on board.”

The 18m “experiences” available on the platform stretch across genres, ranging from unofficial versions of other titles, recreated with Roblox’s signature blocky characters, to digital pet adoption simulators and virtual cities where young users can build homes, earn livelihoods and socialise.

While a subset of most popular games capture the bulk of players on the platform, there is still potential for new games to go viral, said Mr Warnefood. Survival horror game Piggy was created in January but has been played more than 6.5bn times, making it the fourth-most popular game on the platform, according to data from Dubit.

The 18m ‘experiences’ available on Roblox range from unofficial versions of famous games to virtual cities for young users to explore © Reuters

Developers can earn money by selling in-game items such as pets or weapons in exchange for the platform’s digital currency, Robux, which is purchased with real money. Almost one-half of the earnings are split evenly between the company and developers, with the remainder goes to platform costs such as hosting and app store and payment processing fees.

Roblox said developers have earned $209.2m up to the end of September this year, compared to $72.2m during the same period in 2019.

“I wouldn’t say it’s mainly been successful [in encouraging innovation and retaining creators] because of developers being able to make money, but I do think it plays a role,” said Tom Wijman, senior analyst at market research group Newzoo.

John Poelking, senior gaming analyst at Mintel, said that young gamers were spending more of their own money on small in-game purchases. Data from pocket money app RoosterMoney showed that Robux is one of the top products for which children are saving this Christmas.

Mr Wijman emphasised that Roblox’s appeal, like that of Epic Games’ Fortnite, had transcended the pure gaming space. “It’s becoming an alternative place to hang out with friends . . . like another form of social media or perhaps even replacing social media,” he said. Some popular games, such as MeepCity, offer social role-play experiences similar to Second Life or Club Penguin.

Roblox’s status as a public square had been heightened by events including a virtual performance by rapper Lil Nas X in November, which was viewed 33m times, according to the company. In April, a similar event on Fortnite by musician Travis Scott was viewed more than 45m times.

Mr Warneford said that while Roblox still lacked polish in a number of areas, including its developer tools, these were “low-hanging fruit” for the company. “All of that is solvable [given] they managed to get [more than] 150m players every month without professionals making the games.”

The pandemic surge in demand was also unlikely to evaporate, said Mr Wijman, based on data coming out of Asian markets that have left or are leaving lockdown. “Perhaps the level of engagement . . . will fall a little when there are other things to do,” he said. “But we don’t expect a large decline when the world goes back to normal.”

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