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This Week in the Metaverse (W45.2022)
The latest from Meta; Roblox reports third quarter 2022 financial results; Building a non-exploitative metaverse; Other news from around the metaverse
Welcome to Letters - commentary, analysis and ideas from Into The Metaverse.
The latest from Meta
Roblox reports third quarter 2022 financial results
Building a non-exploitative metaverse (podcast)
Other news from around the metaverse
Let’s dig in!
(1) The latest from Meta
Meta reduced the size of its workforce by 13% and has let go of 11,000 employees (read Mark Zuckerberg’s letter). In staggering move to decrease its operating cost, Meta is streamlining majority of its departments to help ensure it can address challenges faced by its Family of Apps (Facebook app, Messenger, WhatsApp, Instagram) which generates majority of its revenue. Minor reduction has been made with its “metaverse” related division, Reality Labs. Investors continue to be puzzled by Zuckerberg’s ambitions and a recent review by The Verge of the new Meta Quest Pro is titled: "get me out of here”.
Why It Matters
Mark Zuckerberg is facing significant headwinds: one the one hand, investors are breathing down his neck to reduce the investments he’s making in Reality Labs and focus on competitive pressure with its core advertising business that is powered by Meta’s family of Apps. On the other hand, the “metaverse” is a long-term ambition for the next version of the Internet and the investment required to truly build a next-generation computing platform, based on Quest (hardware + software) and Horizon (virtual worlds builder) could surpass $100 billion in the next 10 years before it becomes a profitable business endeavor.
Clearly Zuckerberg is in a tough spot, one which only he can rescue the company from as no one can outvote him on the company’s Board of Directors. Will he continue to push forward with the investment in Reality Labs? Will he shift back his focus to the core business and reduce the investment in metaverse initiatives? Or will he spin-off Reality Labs into a separate entity as some people recommend? There are successes to both models: (1) Amazon Web Services has always remained part of Amazon Inc. and ultimately became a massive revenue and profit generator for Amazon (70%+ of Amazon’s operating profit is attributed to AWS); (2) Google evolving its business entity to Alphabet in order to protect its core business (Google) while pursuing “other bets”. Clearly Zuckerberg is pursuing the Amazon strategy but time will tell is that strategy remains in place.
Complement this item with my letter: A Perspective on Meta's Metaverse Creation Efforts.
(2) Roblox reports third quarter 2022 financial results
Third Quarter 2022 Financial and Operational Highlights:
Revenue was $517.7 million, up 2% year over year
Net cash provided by operating activities of $67.1 million; Free cash flow was $67.7 million
Bookings were $701.7 million, up 10% year over year
Average Daily Active Users (DAUs) were 58.8 million, up 24% year over year
Hours Engaged were 13.4 billion, up 20% year over year
Average Bookings per DAU (ABPDAU) was $11.94, down 11% year over year
From Roblox executives:
“We are delivering strong growth across our core operating metrics, powered by a growing developer community creating high-quality experiences that appeal to a broad, global audience,” said David Baszucki, Chief Executive Officer of Roblox. “We are creating innovative technologies to enable deeper forms of immersion, communication and expression to further enhance the value of the platform.”
“We are pleased with the third-quarter growth in users, engagement and bookings, which demonstrates the significant progress we are making on key platform initiatives such as aging up and international growth,” said Michael Guthrie, Chief Financial Officer of Roblox. “At the same time, we are continuing a disciplined capital allocation strategy focused on maximizing long-term shareholder value.”
Why It Matters
While at some point this week Roblox’s stock price declined 20% based on the quarterly results, I recommend remaining focused on the long term potential of the platform. Recently I wrote a letter - Assessing Roblox in the Long-Term: Looking beyond bookings and profitability, in which argue that when assessing the long-term prospects of the platform with my hat on as the CEO of Supersocial, I’m looking at five pillars:
Content & Experiences
Daily Active Users
1) Developer Ecosystem
The developer community on Roblox is one of the most passionate, talented and dedicated in the industry. Roblox, the company, single handedly raised a new generation of developers and creators who are committed to its platform, but also served as a community in which these developers and creators make friends, with whom they build games, and make a living. One of the unsung success factors and competitive advantages of Roblox is its developer community. The surprising thing to me is how underestimated it is a success pillar by the investor community and the industry as a whole. Alongside the growth of its native developer community (aka “Robloxians”), the platform is gradually attracting indie developers and professional studios who recognize the platform’s potential, both economically and as a version of what the metaverse could look like in the future.
2) Content & Experiences
There are millions of games and experiences on the platform. That long tail of content provides many reasons for users to engage, connect and play. There’s an experience for everyone on the platform in multiple genres. Alongside the core category of experiences that has been the foundation of the platform for many years (i.e. games build by its players who became developers), a relatively new category of experiences has emerged in the past 12 months - brand experiences, which is growing fast. With the metaverse emerging as the next frontier for human experiences on the Internet, brands, IP owners and enterprises are rapidly embracing a new generation of social platforms, with Roblox as one of the main ones. There are several sectors that are naturally positioned to enter the Roblox ecosystem with branded experiences and where I’m seeing strong momentum: (1) Fashion & Beauty, (2) Entertainment IP, (3) Sports, (4) Music, and (5) CPG. With 3D avatars becoming ver more important in how people express themselves, consumer brands that amplify personal expression will continue to play a dominant role on the platform.
3) Aged-Up Users
According to Roblox, the fastest growing age group on the platform is 17-24. Roblox also stated recently that for the first time in the platform’s history, the 17-24 age group is equal in size to the 9-12 age group, which historically has been the core platform’s demographics. That is a significant trend which fits well to Roblox strategic priority of aging up the platform (both attracting and retaining users above 13). Being able to consistently attract and retain the older demographics is a key success factor for Roblox in growing its platform and reaching 1 billion monthly users (current estimates suggest the platform has more than 300 million monthly users although no official data has been provided by Roblox). Among others aspects that will help to deliver on this priority are the first two pillars outlined above: (1) continued growth of the developer community (nurturing, attracting and retaining developers and studios); and (2) introducing more and more “aged-up” content and experiences (and hence the important role of brand experiences).
4) Daily Active Users
July 2022 DAUs totaled 58.5 million (58.8 million as of Q3), an all-time high, and up 26% YoY. This is encouraging. It’s essential that Roblox continues to grow, diversify and retain its user base. Rising DAUs lifts all boats. The momentum of user growth is especially important in the aftermath of of Covid-19. While the pandemic is still here, most people in most countries have gone back to some form of normality. That includes young people who are the main audience (currently) of the Roblox platform. Which is why it encouraging to see that July’s user numbers which are at all-times high. The caveat is that we’re at summertime and it remains to be seen if the DAUs growth continues in the coming months once young people are back to school. Should also be noted that Roblox’s DAUs essentially doubled since 2019.
5) Geographic Breakdown
Roblox now has users in 200 countries. Roughly 66% of DAUs come from non-North America markets which is fantastic, especially seeing that of the top 10 countries on the platform, 6 are emerging economies (Brazil, Philippines, Thailand, Mexico, Russia, Turkey). The global appeal for Roblox is clear and the potential upside in the years to come is significant. That being said, the non-North American markets still account for roughly 33% of Roblox’s bookings. Roblox will need to see monetization of international users significantly improving in the coming years in order to balance the the high rate of penetration with users in North America.
I remain bullish on Roblox as an era defining platform and a key player in the emerging metaverse. That being said, challenges are abound, among them:
Diversifying revenue streams for developers so great businesses could be built
Attracting and retaining aged-up users (13+)
Monetizing international users
Investing in, and scaling infrastructure and developer tools
Nurturing and investing in next generation content
Enabling a much more effective discoverability (for both users and developers)
(3) Building a Non-Exploitative Metaverse (podcast)
This week I hosted on the podcast Louis Rosenberg, a pioneer in fields of augmented reality, virtual reality and artificial intelligence. He earned his PhD from Stanford, has been awarded over 300 patents for VR, AR, and AI technologies, and founded a number of successful companies including Unanimous AI, Immersion Corporation, Microscribe, and Outland Research.
We cover in detail the important aspects for how we build a metaverse that we can trust and believe in and whether the metaverse requires sensible regulation.
(4) Other news from around the metaverse
Anyone Can Build Metaverse Applications With New Beta Release of NVIDIA Omniverse (link) → complement with episode 22 on Into The Metaverse where we cover Omniverse with Rev Lebaredian, VP Omniverse & Simulation Technology at NVIDIA.
Roblox discontinues its accelerator program (link).
How UMG Is Building Out Its Bored Ape Metaverse Band, Kingship (link).
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Into The Metaverse is a multi-segment podcast show that covers companies, technologies and trends through deep interviews with the brilliant minds who build, create for, and invest in the metaverse.
Into The Metaverse covers companies, technologies and trends that are bringing this promise to life. Yonatan Raz-Fridman “Yon” (founder & CEO of Supersocial) interviews the brilliant minds building for, and investing in, the Metaverse.