Cathie Wood never stops trying to catch lightning in a bottle the way she did in 2020. The founder, CEO, and primary stock picker of the Ark Invest family of growth-oriented exchange-traded funds (ETFs) has struggled since her aggressive investing style delivered monster results three years ago. She also publishes Ark's daily transactions, giving some insight as to what she's buying and what she's unloading.
Wood was busier than usual on Tuesday. She added to her existing positions in Nextdoor (KIND), Unity Software (U -1.30%), and Coinbase Global (COIN -9.43%). Let's see why she's building up her stakes in these three names.
Nextdoor
Whether you want to be more active in your community or you're just a nosy neighbor, Nextdoor is a hub for strangers living near one another. The hyperlocal message board is a hotbed for specialist referrals, missing pets, referendum jockeying, and general neighborhood complaints. The platform spawned Best of Nextdoor, a popular Twitter account that puts some of the more outrageous postings on blast.
Unfortunately for investors, the stock's been a broken home. It has surrendered 80% of its value since going public as a special purpose acquisition company (SPAC) less than two years ago.
Image source: Getty Images.
Its latest hit came last week after it delivered uninspiring fourth-quarter results. Revenue declined 10% for the quarter -- a far cry from the 66% increase it was posting when it hit the market in late 2021. The community itself is still growing. The 40 million weekly active users it had at the start of this year is 11% more than it had on its hub a year earlier. The rub is that it's hard to make a living as a free ad-supported platform when a tipsy economy finds advertisers scaling back on their promotional spending.
A silver lining here is that Nextdoor is still flush with cash from its market debut. It commands a market cap of $745 million, but back out its net cash position and you find an enterprise value of just $222 million. This would be a dinner bell heard around the virtual neighborhood if Nextdoor was profitable, but obviously it's not. Losses are actually mounting, and analysts see the red ink continuing for years.
Unity Software
Wood is kicking off this trading week with back-to-back days of adding to her stake in Unity. This is another broken initial public offering, cut by more than 40% since it entered the market at $52 three years ago. Unlike Nextdoor, Unity is still clocking in with some impressive top-line gains. Revenue rose 43% in its latest quarter, ahead of market expectations.
Shares of the content creation platform provider still tumbled after last month's report. Losses continue to widen, and guidance for 2023 fell short of Wall Street targets. The 47% to 58% increase in revenue that Unity is forecasting for this year sounds pretty good on the surface, but keep in mind that this isn't entirely organic growth. It recently completed its acquisition of ironSource in a stock deal that was initially valued at $4.4 billion. Analysts see revenue growth slowing to the high teens come 2024.
The good news is that the same Wall Street pros who see revenue decelerating sharply next year also see bottom-line improvement. Reported losses will continue for some time, but the market sees profitability on an adjusted basis happening later this year. Unity's evolution from a gaming industry tool to a widely used platform for movie studios, architects, and graphic designers is sound. Now it just needs to deliver on the bottom line.
Coinbase Global
Wood has a knack for buying stocks that have fallen on market news. Many of her daily purchases are companies that are on the way down. You can be a contrarian growth investor. However, she's been buying a lot of Coinbase this year, even when it's moving higher.
The leading crypto trading exchange had an awful 2021 as rivals imploded and cryptocurrency prices collapsed. It's been a market leader in 2023, up a scorching 75% so far this year. The recovery of leading digital currencies is obviously helping, and with some key competitors shuttered traders are returning to Coinbase.
The long-term challenges remain for cryptocurrency investors. The regulatory risks have always been high, but they are heightened now after so many platforms buckled by taking on too many gambles with their account holder assets. Trading volume is a sliver of what it was in 2021, but Coinbase finally posted sequential revenue improvement in the fourth quarter. Transaction revenue still dipped quarter to quarter, but a sequential uptick in subscription and services revenue helped steer the top line back in the right direction.
