Coinbase, Roblox is taking up the positioning from Google, retaining advertising and marketing prices low
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Cryptocurrency Exchange Coinbase and the Roblox gaming app are both listed on the exchange through a direct listing of their stocks.
They have something else in common that should prove very attractive to investors: brand awareness. Both companies spend less than 10% of their net sales on sales and marketing. These are savings that allow companies to focus more on product development and even profit generation.
With limited marketing, Coinbase became the most popular crypto exchange for consumers. As the prices of Bitcoin and Ethereum have increased, so has trade on the site. Kids mostly hear about Roblox from their friends and neighbors, and then spend hours navigating the app’s millions of games, dressing up their avatar, and purchasing advanced features on the go.
Your tight marketing spending is a rarity. Most venture-backed tech companies spend a lot of money on sales and marketing to get customers. They bleed money to gain mass adoption and gain market share. Consumer businesses often rely on advertising, buy Facebook, Google, and TV ads, and run promotions, while enterprise software companies typically have large sales teams traveling to conferences for new business.
Looking at last year’s best-known IPOs, Airbnb spent 22% of its revenue on sales and marketing, and gaming software provider Unity was 25% in the most recent timeframes on IPO filing documents. DoorDash spent 32% of sales and the desire for e-commerce apps was twice as high at 64%. Snowflake, which carried out the largest IPO to date for a US software company, spent 79% of its sales on sales and marketing in the first half of 2020. Palantir spent 42%.
Twitter, Snap, Uber, Lyft, and Pinterest, all of which went public from 2013 to 2019, spent anywhere between 28% and 37% of their revenue on sales and marketing before their debut.
Both Coinbase and Roblox are single digits.
“For the fiscal year ended December 31, 2020, we spent less than 5% of net sales on sales and marketing, and since its inception, over 90% of our retail users had found us organically or verbally, which reflects the strength of our brand,” said Coinbase in its public prospectus submitted on Thursday.
To be precise, Coinbase spent 4.4% of its revenue on sales and marketing expenses in 2020, while it was 6.3% on Roblox.
Among the biggest US tech debuts in the past few decades, only Google was similarly low at 6% prior to its 2004 IPO. Facebook, which went public in 2012, was 12% last year. Both companies were well-known consumer names long before they went public, which saved them high advertising costs.
Profits against reinvestment
Coinbase has turned its sales and marketing savings directly into profitability. The company posted net income of $ 322.3 million last year, down from a loss of $ 30.4 million in 2019.
However, Roblox is taking a different approach: it is reinvesting in the developers who create its games and expanding its audience. As a result, the net loss rose from $ 71 million in 2019 to $ 250 million last year.
Roblox shares the revenue with the game developers through what is known as a developer exchange program. Developer fees nearly tripled to $ 328.7 million, or more than five times the company’s spending on sales and marketing.
Roblox wants more developers to be able to make a living on the site so they can focus on creating better titles for users and keeping the flywheel going.
“We intend to leverage future cost efficiencies achieved in other areas of our business to increase bottom line for our developers and developers,” the company said in its prospectus.
In Roblox’s presentation to potential shareholders on Friday, the company said it is also investing in expanding its audience beyond children and creating experiences for virtual concerts, parties and other types of live events.
It has the resources in part, as revenues increased over 80% in 2020 but sales and marketing expenses only increased 31%. Roblox said in its prospectus that it expects this trend to continue even as it increases spending on finding new users and hiring on its branded partnership team. “We expect sales and marketing costs in relation to bookings will decrease as our business grows,” said Roblox.
The upcoming Roblox and Coinbase listings follow another tech company that is also keeping advertising costs down. Affirm, a provider of online point-of-sale loans for items like Peloton bikes and Casper mattresses, spent just 4.9% of sales on sales and marketing in the fiscal year ended June 2020. The company said in its prospectus, “We have historically relied on positive word of mouth and consumer recommendations to increase the ubiquity of our platform.”
However, in September the number rose to 13% after Affirm signed a deal with e-commerce technology provider Shopify that included granting warrants to reach partner retailers. That equity became a $ 2 billion stake for Shopify when Affirm went public in January.
SEE: Coinbase files are published