Roblox (NYSE: RBLX) has become one of the world’s most popular video games over the past several years. Based on average monthly users among PC games, the game ranked second in July this year, only behind Minecraft. Since 2018, the company has managed to nearly 10x its revenues.
However, the company’s management is not content with the growth they have seen so far. It has a new goal, which it unveiled recently at the Roblox Developers Conference. CEO David Baszucki said he wants to grow the company to 1 billion daily active users (DAUs) and for 10% of all gaming content revenue to flow through Roblox.
This is quite an ambitious goal. However, analyzing whether this goal is realistic or a pipe dream is essential to evaluating Roblox's future. Let's get a deeper understanding of the entertainment company.
The Current State of Roblox's User Base
As of the firm’s last financial release, the company has nearly 80 million daily active users. The CEO says that the goal of 10% of gaming content revenue could be achieved once the firm reaches 300 million DUAs, so let’s start there.
First, the company doesn’t lay out any timeline for achieving this goal. Year over year, the company increased its DUAs by 21%. Assuming the same growth rate, achieving 300 million DUAs would take a little under seven years.
That’s not an incredibly long time, but it also assumes growth will not taper off. This is a big assumption, considering the top dog in the space, Minecraft, saw its daily users drop 5% from 2021 to 2023. Roblox will need to implement robust strategies to keep user growth from trailing off.
Roblox Is Prioritizing Its Biggest Asset: Developers
One way Roblox is attempting to do this is by providing more incentives to its user-developers. User-generated content is the lifeblood of Roblox. The company relies on its users to create in-game experiences using its game development platform, Roblox Studio.
Other users can then pay in the game’s virtual currency, Robux, to access these different experiences. Developers can then exchange their Robux for real money. Roblox takes a percentage of this to generate its revenue. Driving developers to create more and higher engagement content is the backbone of Roblox’s business model.
Roblox is also partnering with Shopify (NYSE: SHOP). Through this, developers will be able to sell merchandise directly through the Roblox platform. This should help developers make more money, as it reduces the friction involved in getting users to make purchases, increasing their incentive to create content. Shopify is one of the world’s largest e-commerce companies, giving Roblox access to one of the leading platforms in the space.
The company is giving its developers an increased revenue share for certain types of content. Developers will be able to receive 50% to 70% of the money they generate from paid access games.
They will now be able to be paid in real-world currency for these products rather than having to exchange Robux first. The company is also providing tools that developers can use to price their offerings more effectively.
Lastly, the company is introducing its new Creator Affiliate Program. This will give developers access to links they can send out to their audiences. If users sign up for or engage with new content through that link, the developer can earn a commission based on that. This further incentivizes developers to drive new users to the platform.
International Expansion Is Key to Reaching Roblox’s Goals
These announcements show a solid understanding of the driving force behind Roblox's growth: its developers. However, it’s hard to say they alone will be able to sustain 20% plus user growth for years to come.
The company will likely have to do this through international expansion. It is geographically diversified. The US, Canada, Europe, Asia Pacific, and the “Rest of the World” account for around a quarter of its user base.
This should be viewed positively. It shows the company has been able to gain a foothold across the world, demonstrating an ability to stem cultural differences. This shows proof of concept and could allow it to extend its reach further in each of these regions.
DAU growth of over 50% in Japan and India last quarter provides reasons for optimism. The push toward 300 million users will not be easy, but it isn’t outside the realm of possibility. One billion DAUs doesn’t seem worth even discussing at this point.
