2024 has been, for the most part, very demanding for the wider gaming industry. The big spending power of the COVID-19 pandemic has burned out, leaving too many game developers and other businesses in the video game industry with too many employees and not enough revenue streams. As a result, big waves of layoffs in the industry began taking place at the end of 2023. Video games themselves saw a drop in user acquisition, player engagement, and all other relevant factors. Still, in the midst of this crisis, one video game and its wider user-created gaming content manage to avoid the pressures and troubles of this slowdown.
Unlike most other games, this game saw impressive growth. We are talking about Roblox, which currently has nearly 400 million monthly active users. Other Roblox stats and parameters are just as good, allowing for the growth of its metaverse ecosystem to continue unabated. Some may declare that Roblox has won the battle for the first truly functional and globally popular metaverse. However, Roblox is missing one important thing in its arsenal, and that is a steady, long-term monetization mechanism. As the platform continues to grow, so do its costs, while the actual profits remain elusive. For any for-profit-oriented business, this could spell a slow-burning catastrophe in the coming years.
On an average day, around 80 million players log onto the platform to play Roblox games. With their current 380 million active players each month, Roblox has double the users of Steam, three times the users of PlayStation, and five times the number of users of Xbox. It is also doing great compared to its main UGC competitors. It has twice as many players as Minecraft and more than five times the number of Fortnite gamers.
Yet, the platform is also hemorrhaging money. During the past year, Roblox lost about 140 USD on every 100 USD they made in revenue. Much of that money goes to third-party providers like the App Store and other platform fees. More than one-quarter of Roblox's revenue goes to its UGC developers. Overall, the platform loses about 50 percent of its revenue before developer costs. Some estimates place the loss on revenue as high as 77 percent. Add an ongoing cost for Roblox research and development to the equation, and it becomes clear that monetization is a chokepoint for the metaverse.
While the platform is not strictly profitable, it still has plenty of accessible operating funds. Roblox is cash-positive for 24 quarters or slightly longer than that. The reason for this is the use of Robux, the platform's digital currency. Any USD spent on Robux, immediately turns into a sum for its corporate bookings. Out of that money, 10 percent becomes revenue, ready to be used. That is then supplemented by an additional three percent down the line. With a margin of 13 percent and a no-refund policy, the developers can keep their business afloat easily, but the overall profitability issue remains a tough selling point for many investors.
With a very specific and interconnected web of benefits and drawbacks to its business model, solving Roblox's profitability is no simple matter. For starters, the platform could expand its profit margin over those 13 percent and expand its existing cash flow. Other than that, Roblox needs to figure out ways to monetize its so-called non-paying customers. The platform could take a page out of the big social media networks like Facebook and Snapchat, which immediately set up systems that allow them to benefit from users who will never pay for anything. One way to do that would be to introduce some kind of advertisement program for Roblox users, even though it would likely be very unpopular among the players.
Finally, Roblox could consider alternatives to the hefty profit cuts that both big mobile platform operators take. By somehow reducing the costs that are siphoned to Apple's App Store and Google Play, it could see its cash flow increase immediately. However, taking on Google and Apple is both costly and time-consuming.
Despite all of these challenges, Roblox remains steadfastly popular - ultimately, that factor should be the main driving force for the developers to expand its profitability as well.
