Cathie Wood was once Wall Street’s favorite stock picker, and her firm Ark’s flagship Ark Innovation ETF (NYSEARCA:ARKK) rallied over 150% in 2020 amid the pandemic. This exchange-traded fund (ETF) invests in disruptive innovators that often promise great growth potential. And for a long time Tesla (NASDAQ:TSLA) was ARKK’s top holding. Tesla’s strong rally was the chief reason for the ETF’s strong performance during the pandemic year.
Come 2021, all that began to change. Ark’s ETFs began to take a tumble amid fears that potential interest rate hikes would make growth stocks an unattractive investment option. ARKK shed over 23% in 2021 as many of the Covid-19 plays that were part of the fund began to give back their gains. It began to diverge from its star component — Tesla — in the second half of 2021.
The weakness intensified in the new year as an uncertain geopolitical and macroeconomic backdrop began to take a toll on the broader tech sector. After bottoming in mid-May, ARKK began to take a turn for the better, triggering hopes of a reversal in sentiment.
Against this backdrop, here are some Cathie Wood stocks that also double up as growth stocks promising above-market returns for investors.
| ZM | Zoom Video | $107.43 |
| ROKU | Roku | $78.33 |
| RBLX | Roblox | $27.42 |
| TWLO | Twilio | $82.37 |
| PATH | UiPath | $18.16 |
| U | Unity Software | $35.22 |
| NVDA | Nvidia | $162.12 |
Zoom Video (ZM)
Zoom Video’s (NASDAQ:ZM) stock performance may have disappointed following its meteoric climb in 2020. The company, however, has been a consistent performer from the fundamental perspective.
The San Jose, California-based company reported revenue of $4.1 billion for the fiscal-year 2022 that ended on Jan. 31, a 55% year-over-year increase. Despite investment in technology and go-to-market initiatives, GAAP operating margin improved by 100 basis points to 25.9%.
Zoom Video followed it up with strong first quarter earnings and guidance. By the end of the first quarter, the company had 198,900 enterprise customers, a 24% increase YOY. It boasted of a trailing 12-month net dollar expansion rate of 123% for enterprise customers. Number of customers contributing more than $100,000 in revenue totaled 2,916, a 46% increase from a year ago.
Ark Invest holds Zoom Video stock in ARKK and the Ark Next Generation Internet ETF (NYSEARCA:ARKW). The stock makes up 10.9% of ARKK and is the top holding in the fund, while in the ARKW, its share is 9.4%.
In an updated valuation framework released by Ark Invest, analysts Will Summerlin, Andrew Kim and Brett Winton said Zoom Video stock will hit $1,500 by 2026. This suggests a nearly $1,400 upside from the stock’s current level.
Roku (ROKU)
Streaming device maker Roku (NASDAQ:ROKU) bounced about a bit in the past week amid a Business Insider report that raised the specter of a potential acquisition by Netflix (NASDAQ:NFLX). The sell-off seen in the stock since it completed a double-top pattern on the chart in July 2021 has rendered its valuation attractive.
The company has come a long way from being a mere streaming device maker. It now derives revenue from platform, which generate revenue from ad sales and content distribution. In fact, platform revenue accounted for about 88% of the total in the first quarter that ended March 2022. This segment saw 39% YOY growth as opposed to the 19% drop for player revenue.
Other use metrics such as incremental active accounts, streaming hours and average revenue per user, all increased notably from the year-ago period.
The company is a secular beneficiary of the shift in ad revenue from legacy to TV to streaming. Roku is now the top holding in ARKW, with a 8.69% weighting in the fund.
Roblox (RBLX)
Roblox (NYSE:RBLX) is another growth stock that Cathie Wood’s Ark Invest has been piling into recently. The fund’s ETFs added about several hundred thousand shares of Roblox from June 6 through June 9 — 572,000 in ARKK. The online gaming and entertainment platform is another Covid-19 play that thrived during the lockdown and experienced softness thereafter.
The company differentiates itself from other online gaming platforms by allowing users create and play games. The platform leverages on the metaverse, which is considered the next big thing in tech. It earns money from its virtual currency, ads, licenses and royalty.
In May, the company reported a disappointing performance for its first quarter. April metrics provided in the release did not evince much enthusiasm either. The stock, however, showed resilience in the wake of the negative results.
Roblox has struck a chord with young users. Despite its underwhelming first-quarter results, the company still had a commendable average daily active user count of 53.1 million in April. This is a strong increase from the 19.1 million DAUs that was recorded in the fourth quarter of 2019, ahead of the pandemic.
The second quarter could prove to be an inflection point for the company’s fundamentals and the stock.
Twilio (TWLO)
California-based cloud communications platform Twilio (NYSE:TWLO) has also been on a freefall since July 2021. This is despite the company growing revenue at a robust clip quarter after quarter.
For the first quarter that ended in March 2022, the company reported revenue of $875 million, up 48% YOY. At the end of the quarter, the company had 268,000 active accounts. Twilio forecast a solid 36%-38% YOY revenue growth for the second quarter to $912 million to $922 million.
Dollar-based net revenue expansion, a term used to refer to revenue earned from existing customers due to add-ons and up- and cross-selling, was 127% in the first quarter.
Twilio makes up about 4% of ARKK’s holdings and 5.2% of ARKW holding.
The average analysts’ price target for Twilio stock is $207.24, according to TipRanks. This suggests the stock has more room for a run.
UiPath (PATH)
Enterprise automation software vendor UiPath (NYSE:PATH) offers an end-to-end platform for automation. Founded in 2005 in Romania, the company boasts of over 10,330 customers across the globe.
The fundamentals of this growth stock are fairly sound. Its 2023 first quarter, which ended in April 2022, saw revenue growth of 32% to $245 million. Annual recurring revenue, a key performance metric for software-as-a-service (SaaS) companies, was $977 million, up 50% YOY, and the dollar retention rate was 138%. The company also managed to beat on the bottom line and raised its fiscal-year 2023 guidance as well.
UiPath is confident of sustaining the growth, going forward. Ashim Gupta, the company’s chief financial officer, said in a statement in the first quarter earnings report that the company is poised to grab market share:
“The automation market is large and growing and we continue to take market share given the measurable return on investment we create for our customers and the breadth and depth of our automation platform.”
Unity Software (U)
San Francisco, California-based Unity Software (NYSE:U) is a provider of interactive, real-time 3D content. The company recently reported record revenue of $320.1 million for the first quarter, marking a 36% YOY growth. It reports revenue under two segments, create and operate. The revenue growth was led by the create sector’s business helped offset the weakness in the operate segment’s monetization business.
Unity Software blamed the monetization weakness on a fault in its platform that reduced accuracy for its Audience PinPointer tool and the loss of a portion of its data training, partly due to ingestion of bad data from a large customer.
The company expects the monetization challenges to persist through the third quarter but fade away beginning in the fourth quarter. John Riccitiello, chief executive officer of the company, sees the dark skies clearing up by 2023:
“We see these challenges as temporary and not structural and do not expect them to impact the future prospects of our business beyond 2022.”
Nvidia (NVDA)
Ark Invest retook positions in Nvidia (NASDAQ: NVDA) following a hiatus in which it only sold NVDA shares in late May. Three of the firm’s actively-managed funds — ARKK, ARKW and Ark Fintech Innovation ETF (NYSEARCA:ARKF) — hold Nvidia shares.
Nvidia stock, although trading at an elevated valuation, is considered a buy. The company has sufficiently diversified its business and is staring at a mouth-watering, long-term addressable market opportunity of $1 trillion. About 30% of this would come from artificial intelligence and omniverse enterprise software. This is an evolution of sorts for a company, which started out as a maker of graphic processing units.
The lowest YOY revenue growth for the company since 2020 has been 38.7%. It boasts of a superior margin profile. The latest quarterly results show GAAP gross margin at a commendable 65%.
Operationally, Nvidia has been a consistent performer. While maintaining dominant position in its core businesses, the company has also successfully diversified into other hot-and-happening tech areas. This makes Nvidia a must-have tech stock in any portfolio.
On the date of publication, Shanthi Rexaline did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
