Roblox Corp. floated on the New York Stock Exchange today through a direct listing and closed its first day of trading at $69.5 per share, giving the company a fully diluted market capitalization of more than $45 billion.

The company’s strong debut could send an encouraging signal for other tech firms considering to go public via a direct listing.

San Mateo, California-based Roblox operates a popular videogame app of the same name that had more than 32 million active daily users as of 2020. Users can create their own three-dimensional games atop the company’s infrastructure without writing any code and make them available to others.

Roblox makes money by selling virtual currency with which users can buy various in-app items. The company’s revenue grew 56% in 2019 and jumped an additional 82% last year, surpassing $923 million. Roblox’s 2020 sales surge was fueled by a combination of new signups and a sharp increase in the amount of time users spent on its platform: The company’s “hours engaged on Roblox” metric more than doubled last year, to 30.6 billion, across its installed base.

Roblox has been investing heavily in growth initiatives to keep up its sales momentum. That showed up in the company’s direct listing prospectus as a net loss of $253.3 million for 2020, more than triple the $71 million loss it logged the year prior.

In the prospectus, the company cautioned that it plans to continue focusing on long-term growth following the listing. “We may continue to operate at a loss, or our near- and medium-term profitability may be lower than it would be if our strategy were to maximize near- and medium-term profitability,” Roblox stated.

Roblox’s strong growth appears to have convinced investors to overlook its lack of profitability. The $45 billion-plus market capitalization the company received today is a substantial premium over its most recent private valuation of $29.5 billion.

The valuation increase is a positive sign for other tech companies considering to go public via a direct listing. In a traditional initial public offering, a company hires underwriters to generate interest among institutional investors and help set its stock’s initial trading price. A direct listing doesn’t involve underwriters or a predetermined opening share price, which potentially exposes the company going public to greater trading volatility.

There are also advantages. The direct listing route allows companies to avoid underwriting fees, which can provide considerable savings, and gives them the option to list existing shares on the stock market instead of issuing new ones as in an IPO. The result is less dilution for current investors.

Another consumer tech firm that may opt for a direct listing over an IPO is Instacart Inc., according to a Reuters report published last week. It’s believed that the grocery delivery giant could achieve a valuation of more than $50 billion in its stock market debut.  

Photo: NYSE