Roblox (RBLX) goes public with a bet on the metaverse

Games company Roblox went public on Wednesday and ended its first trading session with a staggering market cap of $ 38 billion.

It’s only natural to wonder why a losing company that makes video games for an audience of mostly children and teenagers has attracted such valuation. (Although its impressive growth throughout the 2020 pandemic-fueled gaming boom has surely helped.)

This is where the metaverse comes in. It’s a concept that’s been rife in science fiction for decades. The metaverse is hard to fathom unless you’re a huge geek, so let’s use the more accessible pop culture example. Imagine if the virtual world depicted in the novel and the movie “Ready Player One” really existed. This is what Roblox is trying to build.

Roblox’s real long-term goal is to build a metaverse where millions (or billions!) Can come together to participate in games, meetings, collaborative work, and even Roblox’s own virtual economy powered by its currency called Robux.

Look at the company’s prospectus and comments from its CEO and investors, and you get a clearer picture of Roblox’s grand vision. Roblox doesn’t just make a game that soaks up your hard-earned dollars for virtual items. The company is closer to a futuristic Facebook than, say, a Zynga.

Here’s how Roblox described this vision in its prospectus:

In short, Roblox wants to give the building blocks of a metaverse to its users, who in turn will create the digital world as they see fit. And as a metaverse economy continues to grow and develop, Roblox will get a share of every trade.

Roblox isn’t the only one exploring the concept of the metaverse.

Epic Games, the company behind the popular Fortnite shooter, aims to create a metaverse. It’s already peppered with experiences outside of its main shooter by hosting a Travis Scott concert and the premiere of a clip from the latest Star Wars movie in the world of Fortnite, for example. (Roblox also hosted a virtual gig, starring Lil Nas X.) Microsoft is also involved in the Metaverse, thanks to its purchase of developer Minecraft Mojang for $ 2.5 billion in 2014.

So where does Roblox go from here?

It’s not going to be easy. The company has locked down the game portion of the metaverse pretty well. It’s dabbling in live events. But the next challenge will be convincing people outside of Roblox’s core child and adolescent demographic to come to Roblox for new kinds of experiences.

Part of this challenge comes from the limitations of current technology. Biggest proponents of the metaverse expect augmented reality (AR) and virtual reality (VR) technology to improve enough to provide a true sense of presence as you step into a digital world. But today’s helmets are too awkward to be worn for long periods of time. Their screens are not sharp enough to provide lifelike, pixel-free images. And most of them make you look like a member of Daft Punk. Good luck walking down the street like this.

Yet almost every Big Tech company is pumping money into AR and VR with the belief that it will usher in a new wave of computing and perhaps one day eliminate the need to carry a smartphone in favor of computerized glasses.

Facebook has been most open about its AR projects and plans to release its first pair of AR glasses later this year. CEO Mark Zuckerberg is particularly bullish on the technology. He bought the VR start-up Oculus in 2014 for $ 2 billion and has relied on that technology ever since. In a podcast interview with The Information earlier this week, Zuckerberg expanded on his plans for AR and VR, detailing a world where we can “teleport” anywhere virtually and socialize from a distance while still maintaining a sense of presence. .

Microsoft has its own AR headset called HoloLens, which is mostly used for business applications these days. Plus, priced over $ 3,000, it’s not accessible to the average person. Apple has been much more quiet on its headset plans, but there are plenty of credible reports that 2022 will be the year it launches its first device.

But here, too, there is a risk for companies like Roblox. If Facebook or Apple controls the dominant AR and VR platforms, companies like Roblox will still be forced to play by a competitor’s rules and continue to pay someone a discount on all sales generated in the app. else.

Roblox is probably fine with that though. It focuses on its base of over 31 million people who use Roblox every day and create the world others play in. Millions of them are developers who create and sell experiences within Roblox. And these developers make a living building exclusively for the world of Roblox.

Neil Rimer, co-founder of Index Ventures (which owns more than 10% of Roblox shares) and a member of the Roblox board of directors, told CNBC on Wednesday that the energy around the metaverse would come from those users, not from the company.

“No business can create a metaverse on its own,” Rimer said. “It has to be a community. The metaverse will exist when it mirrors the world in some sense, when there is so much variety that each day you can decide to do whatever you want, just like in the real world.”

– CNBC’s Ari Levy contributed to this report.