Weekly News Digest #38

Roblox Acquires Speechly

US-based game creation and multiplayer platform Roblox (NYSE: RBLX) acquires Finland-based AI voice moderation startup Speechly for an undisclosed sum. Roblox aims to enhance the moderation of voice interactions within its platform by leveraging Speechly’s expertise in AI voice moderation and integration. Speechly’s technology is expected to address challenges related to abuse and antisocial behavior in voice chat, improving the overall player experience and platform growth.

Speechly was founded in 2016 and is developing its eponymous AI platform for real-time speech recognition and tools natural language understanding for gaming, metaverse, and other audio content. The tools can be used for voice chat moderation and for interaction with the gaming environment. The company claims its product can detect profanities, abuse and toxicity in real time, enabling its users to instantly filter all the unacceptable content.

For Roblox, social moderation might be even more important than for many other gaming companies. The platform has over 65 million DAU, 45% of which are players under 12 years old, meaning that approximately 30m children enter the game on a daily basis. For Roblox the younger players are not only a large loyal audience, but also a great responsibility. For example, we saw Roblox being accused of child gambling because of loot boxes in some of the experiences — in Sep’22 one of the biggest Roblox hits Adopt Me was shut down in The Netherlands and Belgium to comply with the local anti-loot boxes laws. The most recent scandal involved third-party services that sell Robux, an in-game currency of Roblox, using gambling mechanics.

Source: Roblox

Being a public company, Roblox must care about its reputation much more than its peers from the private sector. That is why it is critical for the company to fight against any source of bullying and verbal abuse. Besides, the company now pays a lot of attention to bringing an older audience to the game which might potentially increase the risk of conflict between the generations.

While the majority of Roblox users are players under 12, the company states that in 2022 “DAU from 17 to 24-year-old user age group grew faster than any other age group”, growing from 19% of the total audience in 2021 to 21% in 2022. The age demographic expansion is one of the main points of Roblox’s growth strategy. The company aims to expand its platform into new verticals, such as education, communication, and marketing, increase its global reach, and further elaborate its monetization system. The AI voice recognition platform might be one of the elements to smooth the onboarding of new audiences to Roblox.

To put this growth into a perspective, let’s have a quick look at Roblox’s performance lately. On June 30, 2023 Roblox reported 65.5 million DAU showing a solid 25% YoY growth. For the last twelve months (LTM) ended in Jun’23, the company reported $2.4B Revenue (10% YoY growth), with $3.2B in Bookings (18% YoY growth). Adjusted EBITDA, on the contrary, was 13% down, declining from $426.4m to $324.9m. The decline is caused by the increased spendings on Research & Development as well as expenses on data centers and technical infrastructure — together, they accounted for $540m showing a 45% YoY cost growth in Q2’23.

Looking at the graph below, you can also see spikes in adj. EBITDA observed every fourth quarter of the year. This is explained by the company’s use of a subscription-based monetization model. Consequently, certain portions of Revenue are deferred to future periods. However, in the fourth quarters, a larger portion of Deferred Revenue is reevaluated in the adj. EBITDA calculation due to the closing of the fiscal year, so let it not confuse you.

Source: Roblox Financials, in $m

Overall, we see that Roblox shows consistent growth and continues to reinvest its Cash Flows to accelerate the growth of the company. One of the pillars of this growth is the company’s work with the developers that provide content for the platform — 4.8 million of content creators were reported to work with Roblox as of June 30, 2023. In the 2021-2022 period, real-money earnings to the developers were $1.1B, which is a big chunk of the company’s spending. Apart from providing the developers with the opportunity to earn (and pay ~70% fee to Roblox), the company also has its own Game Fund, which can finance and support some of the developers. This initiative can help the platform to get the experiences suitable for the new audiences it plans to attract.

Speaking of all this, we should keep in mind that the voice communication is a key element to Roblox gaming experience. Around 78% of all Roblox players access the platform via their mobile devices where typing is not as convenient as on PC. Though Speechly is not something that will ensure the growth of the company, it is something that may smooth the potential problems that may occur during the implementation of Roblox’s expansion strategy. What’s more, it will support the company endeavors in the AI field, which seem to become one of the essential R&D directions for the large companies of all sorts.

Source: InvestGame

The number of deals involving AI companies has grown rapidly since 2020 and continues to gain momentum. For instance, according to our data, in Q3’20 there were only 8 deals for a total of $39.4m, compared to 19 deals for up to $209.6m in Q3’23 UTD. We elaborated on this subject in our Global Gaming Deals Activity Report H1’23. More data is about to come in our future reports.

We want to thank MGVC for supporting this digest.

VENTURE FINANCING

US-based blockchain-powered games developer Proof of Play has raised $33m in a Seed funding round, led by Chris Dixon at Andreessen Horowitz and Neil Mehta at Greenoaks, with participation from other investors, including ex-Twitch CEO Emmett Shear, who joined the company’s board. The sum will be used for further expansion of the company’s Web3 pirate themed RPG Pirate Nation, which is currently in beta. Proof of Play aims to create a replayable game that allows players to control and add content, ensuring game longevity and decentralization.

India-based social gaming and live streaming platform Eloelo has raised $22m in its pre-Series B funding round, led by Courtside Ventures and Griffin Gaming Partners, with participation from Mixi, Waterbridge Ventures, Lumikai, Kalaari Capital, Convivialite Ventures, and Rocket Capital. The funds will be used to attract talent, develop AI and AR tools, and strengthen user revenue initiatives. The platform creates captivating experiences through gamified live streams, aiming to become India’s largest live entertainment app with a 400% YoY growth rate.

US-based game developer Mountaintop has raised $20.5m out of $25m, according to the SEC filing. The company had already raised a total of $35.5m in Seed and Series A rounds back in 2021. Founded in 2020, Mountaintop is currently developing its first online game, the title of which is yet undisclosed. There is no certain information considering the game’s genre and other details.

UK-based metaverse data analysis company GEEIQ has raised ~$8m (£6.6m) in a funding round, led by YFM Equity Partners. GEEIQ, founded in 2018, focuses on providing data intelligence for the metaverse market, including virtual gaming and social environments like Roblox and Fortnite. The investment will support the company’s scale-up plans, potential international expansion, and further development of its data platform product. GEEIQ’s platform helps high-profile brands like Walmart, Porsche, L’Oreal, and Gucci optimize their virtual strategies, making it a pivotal player in the evolving metaverse market.

Finland-based games developer Spectarium has raised ~$5.3m (€5m) in a Seed funding round led by BITKRAFT, with participation from Delphi Digital and Framework Ventures. The funds will be directed towards the development of their action RPG title Myths, set for a soft launch in 2024, as well as expanding their team. The company aims to deliver unique game experiences for each player using AI technology, similar to the TikTok algorithm, to captivate a global gaming audience.

US-based mixed-reality game developer Wicked Saints Studios has raised $3.5m in a Seed funding round, co-led by Riot Games and Oregon Venture Fund, with participation from several other investors. The studio plans to use the funding to bring its blended-reality mobile game World Reborn to market in 2025 and build a tech stack for high-volume scaling. Wicked Saints Studios aims to empower Gen Z players through immersive storytelling, gameplay, and community, fostering authentic human connection in the world of gaming.

Iceland-based gaming startup Rocky Road Games has raised $3m in a Seed funding round, led by Luminar Ventures, with participation from existing investors Crowberry Capital and Sisu Ventures, along with several angel investors. Rocky Road develops a social gaming network aimed at fostering real-world social connections among players. The company has previously created mobile quiz game QuizUp, with a user base of 100 million globally.

South Korea-based MMORPG developer Polestar Games has raised $2.25m (₩3B) in a Seed funding round from Kakao Ventures, Laguna Investment, and Daesung Private Equity. The sum will be used for further development of the company’s AAA dark fantasy MMORPG Project N for PC and consoles, release date of which is yet to be announced. Polestar Games also develops its own engine for servers.

Turkey-based esports data analytics and scouting platform Scoutli has raised a bridge investment of $0.02m (TL 800k) at a valuation of $0.99m (TL 26.9m). The investment involved participation from current investors, including Sercan Akkaş, Can Hiçbezmez, and Alesta Elektronik. Scoutli plans to launch a Seed investment round in the near future to bolster its cash position for further growth. The platform focuses on esports, utilizing computer vision and AI to streamline match and player analysis processes for esports teams.

PUBLIC OFFERINGS

US-based esports company GameSquare Holdings has received a $10m working capital line of credit from SLR Capital Partners, with the maturity date in September 2026. The move reflects GameSquare’s commitment to non-dilutive funding to support business growth. GameSquare Holdings is a media, entertainment, and technology firm connecting global brands with gaming and youth culture.