Venture capital discovers a $150bn industry

Roblox is expected to become the go-to online network for kids and teenagers

Hey everyone, Andreesen Horowitz (a16z) just discovered that games are “bigger than movies and music combined.”

Anyway, what excites me is that a16z valued Roblox at $4bn. That is a really big number. Many of us will recall that Microsoft acquired Minecraft’s dev Mojang for $2.5bn back in 2014. It raises the question of what justifies the higher valuation. Succinctly, like Fortnite and the vision of Epic Games CEO Sweeney that online games are ultimately a social platform (a view I share, btw), Roblox is expected to become the go-to online network for kids and teenagers. It currently boasts 115MM monthly active users, which is roughly >3x growth from just a few years ago.

The expectation is that Roblox will generate over $1bn in revenue in 2020E (it got close to that number last year), across all of its activities. It has a strong presence online via YouTube (6th most viewed title in 2019 with 69 billion views) and offline at retail. Among the three platforms, console is by far the smallest component for the Roblox audience and much of its recent growth has come from PC (2x) and Mobile (5x).

The logical path forward is an acquisition by Google, for instance, or Microsoft, or perhaps a major toy company. I doubt that a bid by Tencent will go down well in the current market environment despite its existing strategic partnership. I imagine that especially Google is currently evaluating its current success with Stadia, and trying to decide on whether to double down by spending more: Roblox would go a long way toward acquiring popular exclusive content across the Google-vers.

The only existential threats here are some type of malicious pollution of the game environment since it’s mostly underage players, or from a broader market trend as audiences cycle out and move onto the next big thing. And then there’s regulation, of course. Link