Cathie Wood Goes Bargain Shopping: 3 Growth Stocks She Just Bought
Renowned technology investor Cathie Wood has developed a loyal following in recent years. Despite the large drop in Ark Innovation ETF and her other funds recently, the Ark Invest fund continues to attract new buyers, in part through the fund’s long-term success.
Wood also sees multiple innovation platforms evolving simultaneously during what she calls the greatest transformation since the early 1900s. She believes emerging industries can accelerate the pace. compound annual growth (CAGR) of 30% over the next 10 years.
She added to many of her positions to take advantage of this innovation and drive down the stock price. Stock holders might be well served to follow her lead and invest in three Wood growth stock holdings: Roku (ROKU .) 4.89%), Twilio (TWLO 6.72%)and Unity software (U 8.01%). Let’s take a look at each.
Roku is Cathie Wood’s second-largest holding in the Ark Innovation ETF and her fifth-largest holding in Ark Invest funds overall. Its streaming platform has helped support some of the innovations Wood focuses on.
Roku has profited from democratizing the streaming industry on many levels. It has become a largely platform-neutral player, appealing to channels as well as viewers. Although Roku wants you to buy Roku TV, its most significant source of revenue comes from attracting advertisers. Roku’s platform has attracted ads from about 90% Advertising age Top 200 brands.
The platform saw a 55% increase in net revenue in 2021. With users largely unlocked, growth has slowed, but Q1 net revenue came in at $734 million, 28% higher than Q1’s net revenue. with the level of the previous year.
However, slower growth and player-related supply chain issues helped increase operating costs by 55%. This resulted in a Q1 loss of $26 million compared to a profit of $76 million in the prior year quarter.
Amid negative sentiment, Roku’s share price has fallen more than 80% from its 52-week high. However, the price-to-sales (P/S) ratio of 3.7 is near a record low, suggesting the sell-off may have gone too far.
Wood also tracks innovation in the media and cloud space, a factor that may have drawn her to Twilio. This is the 11th largest holding in her combined portfolio and the 10th largest in the Ark Innovation ETF.
Twilio has prospered due to its leader status on its communication APIs. Its platform provides voice, text, email, and video communication on a single application, all without the need for coding experience. Businesses like Lyft and DoorDash would not be able to function without this kind of software.
In Q1 2022, Twilio brought in $875 million in revenue, 48 percent more than in the first quarter of 2022. The loss, however, increased to $222 million, up from $207 million. in the first quarter of the previous year.
Revenue grew 61% in 2021, but Twilio’s apps became more important that year as many users were locked out. With the reopening leading to slower growth, investors have also become frustrated with growing losses, and that feeling may have contributed to the nearly 80% drop in stock prices.
However, its P/S ratio has dropped from 37 in February 2021 to just 4.43 today. Such a valuation could make Twilio worthwhile as its industry expands.
3. Unity software
Wood’s focus on innovation has also captured the potential of the metaverse. Ultimately, Unity became the 12th largest holder in the Ark Innovation ETF and the 13th across all Ark funds.
She is likely already invested in Unity as it will serve as one of the main cornerstones of the metaverse. It calls itself “the world’s leading platform” for real-time and 3D content creation. Developers apply its applications to games, engineering, architecture, film and many other industries. Moreover, it can design content for PCs, smartphones, VR headsets and other devices.
Metaverse-focused developers have certainly used the platform. In Q1, revenue came in at $320 million, 36% higher than a year ago. However, due to a 39% increase in operating expenses during that period, the loss increased to $182 million, up from $108 million a year ago. Additionally, the slowdown in growth is set to continue as the company expects single-digit revenue growth in Q2 before recovering to 22% to 28% for the year.
And like many tech stocks, sentiment has veered sharply against Unity, as it has lost nearly 85% of its value since late last year. However, the P/S ratio fell to 7.74, near the company’s record low. Such a valuation could attract investors as revenue growth returns higher.
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