Roblox Stock: Here’s What You Need to Know About the Upcoming IPO in 2021
Roblox stock has been eagerly awaited for over two months now. Based on how things stand, the wait has to be for even longer now. The wildly popular online gaming hub Roblox filed its IPO plans with the SEC on November 19th, 2020. It intends to be listed on the NYSE with the ticker symbol RBLX. However, one month after that, Roblox announced that it had suspended all those plans for the time being. Roblox said that it was doing it “to work with our advisors to see how we can make … improvements” to its market debut.
Thankfully, during early 2021, Roblox decided how it was going to do that. On January 6th, Roblox announced that it had conducted a private placement of stock, raising about $520 million in cash for itself. Two days after that, Roblox went on to amend its S-1 “going public” filing with the SEC. The company chose to forgo an ordinary “underwritten” IPO at a set offer price (the way most companies go public), and decided to conduct a direct listing of its shares instead. These shares will be offered to the public at the price that it’s willing to pay. Let’s find out more about Roblox stock.
Roblox Stock: Things To Know Before Investing
What is a direct listing?
In the scenario of a normal IPO, a company ends up making shares and selling them to the public in order to raise some capital. A fringe benefit of that is the fact that the firm figures out an accurate read on the value of its stock. With the launch of an IPO, a firm can observe for the first time what people want to pay for it on the public market. However, Roblox isn’t a cash starved company that is in dire need of the public’s money. On the contrary, Roblox claimed in its S-1 prospectus that it already possessed over $800 million in cash. Once you add the proceeds from its private placement, that will go up to $1.3 billion. As you can see, Roblox clearly doesn’t “need” an IPO to raise some cash. As per the current plans, the company is just going to allow its current stockholders to start selling them to the public, at whatever price the market will bear. In total, 196.7 million “Class A” shares of Roblox are expected to be on sale. Because these are existing shares being sold by people who already own them, though, Roblox itself “will not receive any proceeds from the sale.”
(Roblox has another set of shares, Class B shares, that are owned by its founder and CEO David Baszucki. These shares won’t be available for purchase, and they make up 70.7% of the company’s votes).
How much will the Roblox stock cost?
If you are wondering how much the Class A shares of Roblox will cost, here’s a popular estimate. The most recent known private sale of a Class A share of Roblox was carried out for $6.34 per share. However, that was the price in April 2020, when the market was still reeling from the COVID-19 induced stock market crash. In its prospectus, Roblox refers to an “independent common stock valuation report” that puts a price of $41.52 on the stock as of Dec. 31. What it means is that nobody can really guess how much the Roblox stock will cost once it goes on sale.
How does a direct listing work in real life?
Ultimately, “the opening public price of our common stock on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers,” says Roblox, and will be set by a “designated market maker” working in consultation with Roblox’s financial advisors Goldman Sachs and Morgan Stanley in the minutes before trading begins. So how does that work in practice?
To understand that, let’s observe a recently released direct listing: the direct listing IPO of Palantir (NYSE:PLTR) stock, which happened on the NYSE on Wednesday, Sept. 30, 2020. TheFly.com observed this IPO’s performance and reported it throughout the process. Here’s what they saw:
“Investors’ first hint at how Palantir’s IPO might unfold came a week before the IPO, when The Wall Street Journal cited “people familiar with the matter” guesstimating Palantir would go public at about $10 a share. By IPO day, though, the NYSE was guessing that shares might start trading below that level, and so it set a “reference price” of just $7.25 per share.
As the minutes ticked down toward the first trade, NYSE stuck firmly by its $7.25 opinion, even as TheFly’s sources told it that the stock was actually “indicated to open” somewhere between $9.50 per share and $10.25. As the minutes continued to tick down, that range tightened as estimates got more and more accurate, first to a range of $9.90 to $10.10, and then $9.95 to $10.05. Ultimately, when the first trade was recorded, it happened at precisely the price predicted by WSJ a week earlier — $10 a share on the nose.”
Now if you are wondering how to use this information for Roblox stocks, you can start by scanning all finance journals for a story stating the date of the expected IPO. Observe the price that Roblox is expected to trade at, it is most likely going to be close to the original price. Once the IPO day dawns, ignore the “reference price” and focus on the “indicated to open” price instead. Only buy the stock if the price seems right to you.