Roblox is the biggest game in the world, but is unprofitable

My kiddo has easily spent 500+ on Roblox across birthday/Xmas gift cards/chores.

I can't stand that almost all of the games seem to have a pay to win aspect, or are heavily advertising every chance they get.

As a gamer dad, I try to show my kid better games to play, but because they aren't free, his friends can't play. Just drives him to keep playing and wanting more Robux. It's compounded when his favorite Youtubers play...

Seriously don't understand how Roblox isn't being investigated for predatory practices. I imagine they can hide behind the fact users are making most of the mini games, and they are just providing a platform.

> Though Roblox isn’t profitable, there are some significant caveats to the situation. Over the last twelve months, operating cash flow—a far more important measure than accounting-defined profits—were $650MM, about 20% of revenue. Roblox has been cash-positive for at least twenty-four quarters.

This feels like an example of the phenomenon highlighted in another recent post: https://news.ycombinator.com/item?id=41263855

Namely, that as long as Roblox's cash flow is increasing year-over-year, they probably don't care about profit. (And if cash flow ever does stop increasing, they can always get back to sustainability by pumping the brakes on reinvestment spending.)

I can't recall the exact company name (Edit: it was TCI), but this was a smart accounting move that made one of the big US telcos frogleap the competition in the race for connectivity.

Basically, the company invested sufficient into long term assets, big infra investments like cabling, towers, etc. Because of accounting rules, they could choose to amortize all of that investment in a straight line over 30 years, OR accelerate depreciation in the short term.

I believe the company always chose the latter, and the net effect of this was that every year the company would show a loss, 100% related to said infra investments. However, when you carved out depreciation, the company was clearly making increasing amounts of money. Further, all that fiber was capturing new clients, which was free cash flow which they would turn around and capture even more customers with a new round of investments. In effect, the use of accelerated depreciation helped the company manage its tax obligations while expanding aggressively. By deferring tax liabilities and reinvesting capital, the company was able to capture market share and grow its customer base.

Eventually they had to show income and therefore pay the IRS, but by that time they were at the leading edge of the race and investors rewarded this company's CEO handsomely.

The bigger question about Roblox is how and why they got their special treatment from Apple. The whole concept of Roblox is in blatant violation of Apple's App Store policies. I believe they are significantly shielded from competition because who else can get that kind of ongoing and reliable relief from Apple's famously picky and capricious App Store reviewers? Maybe Roblox is happy to pay Apple their 30% in exchange for that protection. And this is not a small matter: Roblox is a public company worth 25 billion dollars based in no small part on this special treatment. The SEC ought to be investigating this.

My kids have started playing Roblox recently and they have started asking for some Robux so they can buy crap... I really don't get how so many people are into spending dollars on this stuff. Everything they wanted was ~$10-20 NZD and it was just throw away stuff, like a costume, etc. And then it's only useful in that one game you have brought it for. It blows my mind that it ever got this popular.

There's something weird and sad about Roblox for me as an old-timer who still has silly dreams about free/open software internet utopias for just fun? There's so much creative (programming etc) energy in that place and, for what?

short rant over

In my (non-finance, parent of a roblox-player) opinion, the problem that Roblox has is that every single roblox game has a "roblox" essence. Every roblox game is undeniably roblox, and to broaden their market and attract higher-paying users, I think they need to fix that.

There's a certain amount of jank in every roblox game, and that's part of the charm. But it's undoubtedly also a reason why people with fatter wallets don't spend more time in roblox.

If you've never played a roblox game this might be hard to understand, but those of you who have spent time in these worlds with your kids you will know exactly what I'm talking about.

Perhaps more finance-related, but the monetization of roblox games is also extremely haphazard - providing more guide rails and designing payments more "in platform" would go a long way towards spending confidence.

20240404 https://news.ycombinator.com/item?id=39935526 https://news.ycombinator.com/item?id=39934101 (Roblox executive says children making money on the platform is 'a gift' )

>Arguing that it's a "gift" when they're taking a 75% cut is just offensive.

20220707 https://news.ycombinator.com/item?id=32014754 (Problems at Roblox)

> Roblox is horrendous. It is as dangerous as any dark corner of the Internet, except that it appears child-friendly to parents.

I bought my son a ps5, Hogwarts Legacy and told him Roblox is never going to be on any device we own or in any network I control.

In addition to being mostly pay-to-win the platform has a pedophile problem.

https://www.bloomberg.com/features/2024-roblox-pedophile-pro...

Roblox is a huge problem for me, as a parent of a 8y kid. Let me explain: I try to block violent apps in his tablet using Google's Family app, however, Roblox internally keeps 'offering' my kid almost any game, whatever if there's violence, drugs, killing others, and so forth.

It's a headache and a source of fights, so, I thank the responsible (/sarcasm).

Why can't they just issue their own device to minimize app store fees. it seems to me the amount money going to app store real estate is more than enough to justify some sort of method of allowing their users to play the game without app store intervening. The total amount spent so far is astounding if viewed in figures. Minus half or quarter of the total time since appearing in app-store for it to be served to the large audience. The other half would have to be too much time spent content. Rest of that half of paid out fees could have more than enough to fund a plan B.

Another reason why having the current ecosystem, where app stores pretty much dictate the destiny for a growing company. creating another device assuming it magically becomes a success, there is most definitely not a long lasting venture either. Bypassing the app store to achieve what exactly? okay this device plays roblox 'and what else can it do?".Discouraging to see companies like this be dictating how they grow and succeed. Only to grow in this manner and be topped out as there is no next phase after this growth, the atmosphere they're in is polluted and cloudy. The next phase in BIG tech is most likely not going to resemble this depiction, for more reasons than i can list here. The big players in tech are losing their ground day by day. Epic Games is relisted back on to the app store, not long ago they were fighting apple over the very same hurdle that Roblox is facing today. Epic Games did however get their way with Google and went on to send a clear message to the rest of the big tech players out there.

I think a big change is near and if not than its needed.

This feels like reading finance fan fiction (which it kind of is, given the author's profession?) and uses a lot of text to reach the part that lays out the actual problem: the average operating costs based on daily active users are $18 per user per quarter, and the average amount made is only $13. so either operating costs need to come down, charges need to go up, or they need (more, stable) external revenue (e.g. ads).

This article tries to, foremost, sell you on the idea that its author is someone you should listen to for financial analyses.

They have positive cash and are paying their employees well. That's what a company should be doing rather than paying peanuts and hoarding wealth like a dragon. Especially as it seems they are actually profitable, just hiding it with accounting.

> When a user buys $30 in Robux, the platform’s virtual currency, Roblox recognizes $30 in bookings. An average of $3 of that $30 is spent on a “consumable” (i.e., a single-user or otherwise perishable good), and so Roblox recognizes that $3 as revenue right away. The remaining $27 is spent on “durable” goods such as an avatar. As an avatar can and often will be used over time, Roblox recognizes this revenue over the average lifetime of a Roblox user

I'm not sure if I'm understanding this point correctly. From my understanding, wouldn't roblox consider their revenue in a given month to be 1/9th of this months purchases + 1/27th of last month's purchases + ...

If so, why would their revenue recognition make them unprofitable? Every month they only realize 1/9th of revenue from that month, but that would be offset by the other 8/9ths of revenue coming from the last 27 months. Wouldn't it just make their recognized revenue a frontloaded rolling average?

They have the craziest most difficult interview process I've ever seen, like beyond quant level. But I don't know why. My kids play it and it feels like the jankiest most busted-ass 3D engine that ever existed. I'm sure all the secret sauce is doing all this stuff at scale, but what do Leetcode hards in 20 minutes have to do with that?

reminds me of the path Minecraft could have taken - they also had a massive amount of community developers building servers, but instead of encouraging monetization and taking a cut, they banned it and cracked down aggressively

Of course, unlike Roblox, Minecraft was profitable

So the real reason they’re not profitable is because they’re doing some accounting magic that counts their income spread over the next 27 month, instead of all up front. They are cash flow positive, it’s just that their income numbers are lagging some 2 years behind.

Roblox exposes children to predators. I hope parents pay more attention and get their children out of Roblox because it doesn’t seem Roblox will do anything. Source: https://www.bloomberg.com/features/2024-roblox-pedophile-pro....

If you struck gold, don’t stop digging. If you hit growth, don’t stop reinvesting.

I don't understand all those terms in the article, but how much of their "unprofitability" is actually creative accounting?

And how is this Roblox better than the (pre MS) Minecraft?

Roblox built up by allowing users to create 'mini-games' that copied every single major title out there, but keep your avatar or a portion of it across games. When I watched my kid play it was littered with copyrighted music, games, and characters everywhere. It's interesting that once it got in trouble with some copyrights it still survived - although I suspect that is just because everyone who could sue them hasn't yet.

I'm surprised that if you're doing $billions through one of the app stores you can't negotiate some large discount from the usual 30% commission?

I do not believe for a second that < 50% of Roblox users are > 13. Two of my three kids all have their ages set to 13+ because they decided to combine the age-related features you do want (limited chat, no tracking etc) with the content lock. I'm happy for my kids to play "Tree-house of Horrors" style games but not to be groomed by older player. Yet Roblox has no option for it.

One thing the article doesn't touch on is that Roblox has yet to tap into the China market, where 25% of the world's gaming revenue reside.

"...at a minimum, they will substitute a 30% fee with a 4% credit card processing expense..."

Which large corporation is paying anything close to 4% for credit card processing? Based on what's available to me in my small business, I'd be astonished if anyone doing any significant volume was paying as much as half of this percentage.

Everything I've seen from Roblox just seems so rough across the board. Poor UI, poor graphics, poor gameplay. There's a sense of freedom that is quite refreshing kind of like Gary's mod. I'm just so surprised that with such high adoption, none of the money is going into make anything remotely polished.

Really interesting talk from Stanford's Entrepreneurial Thought Leaders podcast.

2018 but its still worth listening to.

https://ecorner.stanford.edu/podcasts/when-the-platform-is-y...

Good content, but I must say that the site made it a difficult read. It seems serviceable on a phone, but on anything larger, it's questionable.

The width of the text seems odd. It's too narrow on a medium viewport but too wide on a large one. Around 75 characters per line is usually the sweet spot for legibility. The font sizes also seem to be quite peculiar, being done with seemingly unneeded complexity: `font-size: calc((var(--normal-text-size-value) - 1) * 1.2vw + 1rem)`. Not quite sure this is necessary?

My computer also seemed to really struggle rendering the page as it stuttered constantly while scrolling or resizing.

Additionally (and this is moving into nitpicking territory), the navbar strikes me as a bit busy and overwhelming with its 15 items. Perhaps some culling or drop-down menus are in order. I can't say I'm a huge fan of what looks to be a distorted AI-generated header image either.

I find the whole idea of money-driven game environment to be so repulsive. It's like ultimate goal of earning money is put above having fun. Not something it'd love my kids to experience.

Me any my wife's experience with roblox:

>Find good games through reddit recommendations

>Play the games, most are novel and remind me of WC3 customs

>Show our non-gamer friends the quirky games

Its pretty cool, but there is soo much garbage to get past.

>But as COVID receded into memory, Roblox shifted from “new” to “familiar,”

"New"? Roblox came out nearly 20 years ago...

It went from "cult classic" to "viral phenomenon".

I'm sure it makes sense to people smarter than me but I just don't get building a software business with <5% margins. What's the point? Clearly you failed somewhere along the lines at the whole thing you set out for, which is a clear profit engine... So how do you end up with numbers that look like you are doing easily copyable manufacturing with a tight bottom line? I think too much focus on product growth and organizational growth, and not enough on efficiency, scale, and profit.

The best times I've had at startups were when we were lean, and profiting >50%. The business was easier, we had more flexibility for decisions, morale was great... But then they all seem to grow into 0-10% profit corporate behemoths where each employee can't even tell if the job they do is worth their paycheck, it just becomes awkward, slow, uninspiring work.

And then you find yourself robbing more single parents checking accounts than anyone on earth, but not even profiting. How depressing.

Roblox is a destable scummy company that depends on the exploitation of children to make money.

They took the exploitative practices of microtransaction based games, targeted them at children, then decided to use child labor to create content inside an expoitatively taxed monetization system, then decided to abdicate all their responsibility for responsible community management to protect these children by shutting down their own forums and pushing everything to Discord. Now we have children working for unvetted strangers with no labor protection and no oversight.

w.r.t article. Very wordy, could easily have been summarised.

I guess if your costs are high enough, you can eat any amount of profit.

They clearly need to get their expenses under control (if they care about generating an actual profit). There's only so much you can grow once you get to a certain threshold, and they must be getting near it.

Spending 2b on opex seems kinda crazy (3.2b revenue vs 1.2b income). Most games are opex-light, capex-expensive. Their capex is definitely not cheap either, though that seems to be a tradeoff they choose to have.

Of course, this all presumes the people running the company care about generating a profit (by no means a guarantee!). I'm sure all of the employees are making out like bandits, based on other commenters, and if management is happy to spend the money, well, that's all there is to it. It would be hard for anyone to argue with their success in growing their userbase, if nothing else.

Where is the money coming from if they are not profitable?

Can anyone explain the business model? Do they take a cut of robux purchases?

Is that the main source of income? How do game makers get paid?

> Unlike other social platforms, Roblox’s revenue is nearly all via user spending rather than advertising. As such, Roblox pays 25% of its revenue to Apple and Google (30% of transactions on those platforms) whereas Facebook, Snap, et al pay effectively 0. Note that Facebook, which has structurally lower costs to service users than Roblox and is far more mature, has an operating margin of roughly 40% — if the company had to pay out 25-30% first, it would never have “tech company” profit margins, let alone profit dollars.

Wow. I've never though about this before, but this is an awful second-order consequence of the high app store fees set by Apple and Google. It essentially incentivizes App makers to treat users as products not customers!

(Not too surprising for Google, but certainly goes against Apple's public stance).

FTFY: "biggest surveillance effort targeting children"

TL;DR; if you discount the way their accounting is done (which artificially lowers their profits), it's not profitable because Apple and Google are eating 30% of their sales on their App stores.

tl;dr they are profitable, but they don't want to show it. Once they want to reach profitability they will fire (layoff) most of the R&D department and make billions.

Toxic corporate culture isn’t helping

> Everyone knows Roblox is huge.

I had to web search for what this thing was, apparently a game for small kids? Why should "everyone" know about video-games addressed to children?