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

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. 

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

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

a woman holds out an electric vehicle charger with a satisfied look on her face behind cool sunglasses.
International Stock News

Here’s how Tritium (NASDAQ:DCFC) has been performing since listing in the US

Key points Direct-current fast-charger manufacturer Tritium is now on the Nasdaq Shares in the company have slipped to the downside …

Read more »

share price dropping
International Stock News

Why Tesla stock just tumbled 12%

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. What happened Shares of …

Read more »

cryptocurrency gold bitcoin coin logo
International Stock News

What? 2 days of gains for Bitcoin, Ethereum, and Dogecoin?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. What happened The strong …

Read more »

Man stands with head on his hands in front of a downward graph.
International Stock News

The Nasdaq is down 11% in 2022 — 6 charts suggest what will happen next

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. I don't know about …

Read more »

Two elderly women using technology showing joy
International Stock News

How to invest — and why — with Tom and David Gardner

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. In this weekend conversation, …

Read more »

Man sits at computer and analyses stock graphic
International Stock News

Apple stock before earnings: Sell or Buy?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. Apple (NASDAQ: AAPL) is …

Read more »

A man activates an arrow shooting up into a cloud sign on his phone, indicating share price movement in ASX tech shares
International Stock News

The cloud wars are heating up, and Amazon is primed to thrive

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. Enterprises are increasingly relying …

Read more »

International Stock News

This crypto will be the Ethereum of 2022

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated. Several cryptocurrencies are emerging …

Read more »