Scottish Mortgage Investment Trust has chunky stakes in some of the world’s most important growth companies. In the FTSE 100 trust’s top 10 holdings are the world’s leading chip foundry (Taiwan Semi) and $4.3trn colossus Nvidia.
Recently though, a new growth stock has broken into the 10 largest holdings after surging 150% since April. Let’s take a closer look at this high-flyer.
Metaverse leader
The stock I’m talking about is Roblox (NYSE:RBLX). Parents of kids aged 7-14 will likely be familiar with the gaming firm. Or more specifically Robux, its digital currency that allows players to unlock features and customise avatars.
Roblox often gets dismissed as just a kids’ game, but that underestimates it. It’s more like YouTube for interactive worlds. Just as YouTube doesn’t create videos, Roblox doesn’t do its own games. Instead, it supplies the tools for millions of independent creators, then takes a cut of the Robux spent inside their worlds.
In the year to 30 June, Roblox creators collectively earned over $1bn, and that’s set to go higher in the current period. At its 2025 developer conference, which took place last week, the company announced loads of improved tools, including many with AI capabilities.
For example, players will be able to trigger actions in games by saying things like “open the door“, while real-time translation will allow two players to communicate in different languages.
Roblox also signed an IP partnership with Barbie maker Mattel to give creators the ability to build games based on their favourite brands. This follows a deal with Netflix, allowing something similar with franchises like Stranger Things and Squid Game.
Financial performance
The company is putting up very impressive numbers. Second-quarter bookings (often used as a proxy for revenue) rocketed 51% to $1.44bn, while daily active users (DAUs) were up 41% to 112m.
Notably, about 60% of Roblox users are now older than 13. This demographic is growing the fastest, is more engaged, and has more money to spend.
For the full year, management is estimating bookings between $5.87bn and $5.97bn, and as much as $1.08bn in free cash flow.
Longer term, Roblox aims to attract 1bn regular users!
Reality check
In my eyes, Roblox is morphing into a very powerful platform, with an untapped long-term digital advertisement opportunity. Historically, long-term investors have done very well owning such stocks, even if they had to pay a premium to do so at first.
Having said that, there’s no sugarcoating the fact that this is a very expensive stock. Stripping out cash, Roblox is trading at roughly 15 times its forecast 2025 bookings. And around 84 times expected free cash flow.
Were sales or user number growth to disappoint — even slightly — the stock could pull back sharply given the hefty price tag. Roblox also pays a lot in stock-based compensation, which dilutes existing shareholders and will have to be reined in at some point.
Patience
I think investors should consider waiting patiently for a share price dip. I reckon there could be a more attractive opportunities in future.
However, Scottish Mortgage might be worth a look. The trust is heavily skewed towards US growth stocks, which adds risk, but it offers diversification beyond just Roblox. And the shares are currently trading at a 10% discount to the underlying net asset value.
