Last week, I saw that Roblox, a global online game platform, has been forced to delay its public market debut due to scrutiny from the SEC. My daughter is an avid Roblox player, so I was immediately intrigued. Roblox’s valuation has grown over seven-fold in the months since the start of the COVID-19 pandemic, as video games continue to rise in popularity. However, according to an SEC memo, the commission has reservations over the way in which Roblox recognizes revenue from the sale of its currency, Robux, on the platform. The struggles Roblox is facing are similar to the challenges of B2B companies we serve. In fact, simplifying revenue recognition for subscription businesses is one of the reasons we built the Ordway platform.
Current state: Roblox treats all revenue the same
Players on the platform use Robux to buy a mix of durable goods, which last for a period of time, and consumable goods, which are used immediately. While Roblox has treated all the revenue the same and amortized it over the duration of its paying user accounts (around 2 years), the SEC wants Roblox to be more specific and recognize revenue on consumable products at the time they are consumed. And durable services will still be recognized over the life of the Roblox user, according to the memo.
The solution? A platform that can handle complex, multi-layered revenue recognition use cases for unique subscriptions and contracts. The Ordway billing and revenue automation platform supports your ASC 606 revenue recognition by providing a flexible system that aligns with your judgement about the appropriate allocation of revenue. Ordway’s revenue recognition software allows businesses to create revenue schedule rules based on transaction type, generate accurate revenue schedules, and create summary journal entries to automatically send to general ledger software.
In the example of Roblox, the Ordway platform could treat the one-off Robux purchases differently than the underlying subscription and keep Roblox management in good standing with the SEC.
Roblox would be able to create a revenue recognition rule for usage, and a separate rule for subscriptions.
Frequently Asked Questions
The SEC had concerns about how Roblox recognized revenue from Robux sales. Roblox was treating all revenue the same and amortizing it over 2 years, but the SEC wanted consumable products recognized immediately when used and durable goods recognized over their useful life.
Consumable goods are used immediately and should be recognized as revenue when consumed, while durable goods last for a period of time and should be recognized over their useful life. Roblox initially lumped both together.
Roblox amortized all revenue over approximately 2 years, which was the average duration of its paying user accounts.
Yes, subscription businesses face comparable revenue recognition complexity, which is why platforms like Ordway were built to simplify the process for B2B companies.
