Roblox Holds Off On IPO Following SEC Scrutiny

Online gaming and entertainment platform Roblox is holding off on a public listing after the U.S. Security and Exchange Commission (SEC) raised concerns, Reuters reported on Friday (Jan. 29), citing an employee memo. The SEC is investigating how the San Francisco-area startup allocates revenue. 

Roblox was planning to list shares on the New York Stock Exchange in the fourth quarter of 2020 but in an SEC filing on Jan. 8, the company changed its plans to a direct listing to occur in February. 

A funding round earlier this month put Roblox’s valuation at $29.5 billion, up from just $4 billion almost a year ago. The worldwide pandemic has accelerated the popularity of video games.

The SEC’s issue is over how Roblox recognizes revenue from the sale of its currency, Robux, according to the memo seen by Reuters. Players use Robux in the game for the purchase of durable and consumable goods. 

Roblox was originally planning to treat all revenue the same but the SEC wants the company to recognize profits on consumable products as they are consumed. 

“By adopting that accounting position, our revenue will actually be a bit higher, while bookings, DAUs (daily active users), hours of engagement, and cash flow will not change,” Founder and Chief Executive David Baszucki wrote in the memo to Roblox staff, per Reuters.

The company registered for a direct listing, following the path of companies such as Slack and Spotify that went straight to the broader market. Direct listings have certain risks but can be an easier process when compared to a traditional initial public offering. 

Earlier this month, Roblox raised $520 million in a funding round led by Altimeter Capital and Dragoneer Investment Group. The Investment Group of Santa Barbara, California, and Warner Music Group, along with several current investors, also participated in the latest funding round.

Roblox is a popular gaming site among children, with an array of games on mobile devices and consoles. The company reported its daily active user base increased 82 percent to 31.1 million in the nine months ended Sept. 30 over the same period a year ago, per Reuters.