While the Metaverse is only fun when it makes money, the immediate future doesn’t look bright for Roblox.
The metaverse and gaming company is expected to release its third-quarter results on Wednesday morning before the market opens, indicating that it is attracting new users, but average spending is falling. That leaves the company’s attempt to increase ad revenue as the likeliest way to improve results.
At its annual developer conference in September, Roblox announced that it would begin rolling out “immersive” 3D ads to its audience aged 13 and older.
“The ‘metaverse’ is a broad area in which consumers spend time,” says Bernie McTernan, senior internet and consumer technology analyst at Needham. “Typically, these are monetized through advertising.”
Their bet on advertising is a stark difference from competing metaverse platforms, especially since the advertising industry has been hit hard by the deteriorating economy. As the social media giant spends more on its metaverse division and move away of its core advertising business, Roblox does the opposite.
“They haven’t given numbers yet on what they think they can get in ad revenue,” McTernan says, but focusing on adding another revenue stream could make the company more profitable. Still, its immersive ads strategy wouldn’t begin until next year, and the 3D technology needed to implement them could slow ad revenue.
September metrics released ahead of its results, show daily active users were up 19% in September and 23% year-over-year, but estimated bookings, or the amount spent by those users, fell 10%.
The reservations metric is based on the amount of Robux virtual currency that users purchase to purchase in-world assets, such as virtual clothing, accessories, and collectibles for their avatars. With thrifty users, Roblox faces the pressure of a strong dollar, which reduces the value of sales in most other currencies. The currency effect in September, reduced sales by around 6%, Roblox reported.
Although often described as an interactive social gaming platform, Roblox largely contains elements of a metaverse and is considered one of the early success stories, at least in terms of drawing users. The platform is built on the basis of user-generated content. Developers, many of whom are also users, are paid in Robux after users make purchases in their games.
This is not unlike blockchain-based metaverses, where users buy currencies or tokens around the world that hold value in the ecosystem, but also translate into actual dollar amounts, e.g. $SAND token from The Sandbox and $MANA from Decentraland.
Roblox is notably not a blockchain-based metaverse. Although it has experimented with building blockchain-based games, its conventional, centralized model has made it an attractive option for brands looking to get involved in metaverse technology.
The company’s hybrid approach to social gaming makes it one of the most active metaverse platforms to date, with 57.8 million daily active users. The horizon worlds of Meta would have only has 200,000 daily active users, for comparison.
Roblox is more popular than its metaverse competitors. Investors were willing to pay 71.04 times the company’s free cash flow (FCF) for its shares at the end of September, significantly more than video game rivals Electronic Arts and Activision Blizzard. Meta lags public companies, with investors only willing to pay a 10x multiple.
Estimates from the digital asset research arm of financial markets firm BTIG put Roblox’s third-quarter revenue at $680 million, up from $509.3 million a year earlier. The net loss is expected to worsen to $167 million from $74 million last time. The adjusted estimate of earnings per share, widely used on Wall Street, was estimated at a loss of 28 cents, up from 13 cents last year.