Roblox shares added to ARK Next Generation fund, but why?

Cathie Wood's ARK Invest adds Roblox (NYSE:RBLX) shares to its ARK Next Generation Internet ETF on IPO day. But what is the justification?

| More on:
A boy with question mark on his forehead looking up as if watching an ASX share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

Roblox Corp (NYSE: RBLX) completed its initial public offering (IPO) and listed on the New York Stock Exchange on Wednesday.

The game platform boasts nearly 200 million monthly active users. For somewhat of a comparison, Call of Duty, which is owned by Activision Blizzard Inc (NASDAQ: ATVI) recorded 100 million monthly active users in the last months of 2020.

Roblox matches the description

Since this exchange-traded fund (ETF) is an actively managed fund, ARK Invest posts its position changes daily. As a result, we now know that Cathie Wood's ARK Next Generation Internet ETF (NYSE: ARKW) nabbed 519,086 Roblox shares on the IPO day. But you might be asking why?

It might be hard to see how a digital world could be worth investing in. Furthermore, how Roblox could justify its now $40 billion market capitalisation – that's right, just under half the size of Westpac Banking Corp (ASX: WBC).

Well for starters, there's a lot of people playing the game. As this audience purchases in-game items, Roblox gains revenue – and lots of it! Roblox is expecting to hit US$1.5 billion in revenue for the year by the end of 2021.

Roblox also fits into one of ARK's 'Big Ideas 2021' virtual worlds. By ARK's definition, virtual worlds consist of video games, augmented reality, and virtual reality. Roblox is a virtual world, where people interact with each other through over 50 million user-created meta-games.

According to ARK, revenue from virtual worlds will compound at an annual rate of 17%, from US$180 billion at present to US$390 billion by 2025.

Video games becoming the 'third place'

In ARK's big ideas presentation, it notes the concept of the 'third place'. A place that is separate from home and work, that people are creating a life around.

According to ARK's research, time spent on video games for the average person will increase from 1.1 hours per day to 1.5 hours in the next five years. If this does in fact transpire, it will mean more time and likely more money being spent within these virtual environments. 

This trend was certainly catapulted forward by the COVID-19 pandemic. According to Verizon, video game internet traffic increased by 75% in America during lockdowns. Gaming giants like Roblox benefitted strongly from the circumstances, and growth doesn't appear to be slowing down. For the first quarter of FY21, Roblox expects revenue to double to US$320 million. 

Based on ARK's latest filing, Roblox holds a weighting of 0.47% in the next generation ETF. Will Cathie Wood increase its holding of Roblox shares, we will be watching to see. 

Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Activision Blizzard. The Motley Fool Australia has recommended Activision Blizzard. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

Humanoid robot analysing the stock market, symbolising artificial intelligence shares.
International Stock News

Cathie Wood says if she could only invest in 1 artificial intelligence (AI) stock, this would be it (Hint: It's Not Palantir)

Let's dig into why this stock has earned so much confidence from Wood.

Read more »

Woman in business suit holds both hands out with a question mark above each hand.
International Stock News

Better core AI stock: Nvidia or Palantir Technologies?

Which of these top innovation stocks is the better buy as a core AI holding?

Read more »

A Tesla car driving along a road at sunset.
International Stock News

Prediction: This artificial intelligence (AI) stock could be the biggest winner of the second half of 2025

Let's take a look.

Read more »

Digital rocket on a laptop.
International Stock News

Prediction: After losing more than $1 trillion in market cap earlier this year, this monster artificial intelligence (AI) stock will become the most valuable business in the world by the end of the year

I'll explain why investor enthusiasm is on the rise and detail why I think the stock is poised for an…

Read more »

A tech worker wearing a mask holds a computer chip.
International Stock News

Think it's too late to buy Nvidia stock? Here's the biggest reason why there's still time.

This is just the beginning for AI, and Nvidia is well-positioned to tap into that high growth.

Read more »

Happy man working on his laptop.
International Stock News

Meta Platforms stock will soar over the next 5 years. Here's 1 reason why.

Over the last five years, Meta Platforms stock has been one of the best names to own.

Read more »

Amazon boxes stacked up on a doorstep.
International Stock News

Prediction: This artificial intelligence (AI) stock could be the surprise winner of 2025

The business is strong on many fronts.

Read more »

Hand with AI in capital letters and AI-related digital icons.
International Stock News

Should you forget Nvidia and buy this artificial intelligence (AI) stock right now?

Let's take a closer look.

Read more »