If you struck gold, don’t stop digging. If you hit growth, don’t stop reinvesting.
Any game has an inherently limited and temporary TAM, unless you can license the engine to other companies.
What’s TAM?
Roblox is the biggest game in the world, but is unprofitable
21–30 of 590 posts
Re: Roblox is the biggest game in the world, but is unprofitable
#22> Unlike other social platforms, Roblox’s revenue is nearly all via user spending rather than advertising. As such, Roblox pays 25% of its revenue to Apple and Google (30% of transactions on those platforms) whereas Facebook, Snap, et al pay effectively 0. Note that Facebook, which has structurally lower costs to service users than Roblox and is far more mature, has an operating margin of roughly 40% — if the company had to pay out 25-30% first, it would never have “tech company” profit margins, let alone profit dollars.
Wow. I've never though about this before, but this is an awful second-order consequence of the high app store fees set by Apple and Google. It essentially incentivizes App makers to treat users as products not customers!
(Not too surprising for Google, but certainly goes against Apple's public stance).
Re: Roblox is the biggest game in the world, but is unprofitable
#23Where is the money coming from if they are not profitable?
It's an accounting trick. 1) Make tons of cash. 2) Invest the cash back in the business. 3) Record this investment on the financials as an expense. 4) The expenses inflated by investment spending means you declare no profit and probably pay no tax on that profit you just hid. The alternative is: 1) declare profit 2) Pay tax on it 3) Reinvest what's left after the taxman took a cut. Which would you choose if you were…
I mean, it's not even profit hiding is it? Corporation tax is pretty openly an incentive for companies to invest in growth and people, rather than either sitting on cash or paying out to their owners.
It's entirely normal and above board. Desirable even.
Re: Roblox is the biggest game in the world, but is unprofitable
#24Where is the money coming from if they are not profitable?
It's an accounting trick. 1) Make tons of cash. 2) Invest the cash back in the business. 3) Record this investment on the financials as an expense. 4) The expenses inflated by investment spending means you declare no profit and probably pay no tax on that profit you just hid. The alternative is: 1) declare profit 2) Pay tax on it 3) Reinvest what's left after the taxman took a cut. Which would you choose if you were…
Sorry but I'm an accountant and I can't abide such a terrible and incorrect description of how this works. Dunning Kruger in full effect on HN today.
Re: Roblox is the biggest game in the world, but is unprofitable
#25In my (non-finance, parent of a roblox-player) opinion, the problem that Roblox has is that every single roblox game has a "roblox" essence. Every roblox game is undeniably roblox, and to broaden their market and attract higher-paying users, I think they need to fix that.
There's a certain amount of jank in every roblox game, and that's part of the charm. But it's undoubtedly also a reason why people with fatter wallets don't spend more time in roblox.
If you've never played a roblox game this might be hard to understand, but those of you who have spent time in these worlds with your kids you will know exactly what I'm talking about.
Perhaps more finance-related, but the monetization of roblox games is also extremely haphazard - providing more guide rails and designing payments more "in platform" would go a long way towards spending confidence.
Re: Roblox is the biggest game in the world, but is unprofitable
#26I can't recall the exact company name (Edit: it was TCI), but this was a smart accounting move that made one of the big US telcos frogleap the competition in the race for connectivity.
Basically, the company invested sufficient into long term assets, big infra investments like cabling, towers, etc. Because of accounting rules, they could choose to amortize all of that investment in a straight line over 30 years, OR accelerate depreciation in the short term.
I believe the company always chose the latter, and the net effect of this was that every year the company would show a loss, 100% related to said infra investments. However, when you carved out depreciation, the company was clearly making increasing amounts of money. Further, all that fiber was capturing new clients, which was free cash flow which they would turn around and capture even more customers with a new round of investments. In effect, the use of accelerated depreciation helped the company manage its tax obligations while expanding aggressively. By deferring tax liabilities and reinvesting capital, the company was able to capture market share and grow its customer base.
Eventually they had to show income and therefore pay the IRS, but by that time they were at the leading edge of the race and investors rewarded this company's CEO handsomely.
Re: Roblox is the biggest game in the world, but is unprofitable
#2720240404 https://news.ycombinator.com/item?id=39935526 https://news.ycombinator.com/item?id=39934101 (Roblox executive says children making money on the platform is 'a gift' )
>Arguing that it's a "gift" when they're taking a 75% cut is just offensive.
20220707 https://news.ycombinator.com/item?id=32014754 (Problems at Roblox)
> Roblox is horrendous. It is as dangerous as any dark corner of the Internet, except that it appears child-friendly to parents.
Re: Roblox is the biggest game in the world, but is unprofitable
#28The bigger question about Roblox is how and why they got their special treatment from Apple. The whole concept of Roblox is in blatant violation of Apple's App Store policies. I believe they are significantly shielded from competition because who else can get that kind of ongoing and reliable relief from Apple's famously picky and capricious App Store reviewers? Maybe Roblox is happy to pay Apple their 30% in exchang…
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Re: Roblox is the biggest game in the world, but is unprofitable
#29Earlier quoted context omitted.
It's an accounting trick. 1) Make tons of cash. 2) Invest the cash back in the business. 3) Record this investment on the financials as an expense. 4) The expenses inflated by investment spending means you declare no profit and probably pay no tax on that profit you just hid. The alternative is: 1) declare profit 2) Pay tax on it 3) Reinvest what's left after the taxman took a cut. Which would you choose if you were…
Sorry but I'm an accountant and I can't abide such a terrible and incorrect description of how this works. Dunning Kruger in full effect on HN today.
Shame you couldn't manage an explanation and just went with abuse.
Re: Roblox is the biggest game in the world, but is unprofitable
#30Earlier quoted context omitted.
It's an accounting trick. 1) Make tons of cash. 2) Invest the cash back in the business. 3) Record this investment on the financials as an expense. 4) The expenses inflated by investment spending means you declare no profit and probably pay no tax on that profit you just hid. The alternative is: 1) declare profit 2) Pay tax on it 3) Reinvest what's left after the taxman took a cut. Which would you choose if you were…
Are these troll posts? “Investing cash into a business” is an expense, no different than any other business expense.
Advertising, to grow sales can be expensed, for example. Buying new plant, not so much.