Cathie Wood has made quite a name for herself over the past couple of years. The founder and CEO of ARK Invest can boast of unrivaled results for her five flagship exchange-traded funds (ETFs) last year, as each generated returns of more than 100% in 2020. Wood has a knack for identifying some of the most important disruptive and emerging trends and investing accordingly, making her one of the most watched names on Wall Street.
Many seasoned investors avoid newly public companies those stocks tend to carry greater risk. Over the past several weeks, however, Wood has been buying up a number of these recent issues. Given her track record, some of these stocks might be worth a look. Let's look at three stocks that went public within the past year that made their way onto Cathie Wood's radar and ultimately into ARK's portfolios.
What's most notable about the recent addition of Roblox (RBLX -1.11%) is that the ARK Next Generation Internet (ARKW 1.52%) ETF added more than 500,000 shares of the video game platform on Wednesday, the day of the stock's direct listing. That's an unusually risky move, so it signals that Wood has a fair degree of confidence that Roblox will continue to succeed.
It's easy to see why Roblox would be a good fit for Wood's investing style. The company boasts one of the most popular video game platforms for children, but it's much more. Roblox also hosts online training seminars that teach kids to develop their own games, which can then be hosted on the platform -- without the "developers" having to learn professional-level coding skills.
Growth has been impressive over the past year. Revenue grew 82% year-over-year in 2020, up from 56% gains in 2019. Its net loss also accelerated, worsening 264% compared to the prior year. Perhaps more importantly, however, free cash flow soared 27-fold, which suggests that non-cash items are causing the losses. Roblox also grew its daily active user (DAU) base to 32.6 million, up 85% year-over-year. The number of developers on the platform topped 8 million, and the fees they earned for their creations nearly tripled.
Given its skyrocketing growth, it's easy to understand why Wood jumped on Roblox early.
Over the past several weeks, both the ARK Innovation (ARKK 2.92%) ETF and the ARK Fintech Innovation (ARKF 1.39%) ETF have made several purchases of DraftKings (DKNG 2.80%). The fantasy sports and online gambling company went public less than a year ago after merging with a special purpose acquisition company (SPAC), but certainly meets the fund's goal of finding disruptive products and services. Maybe that's why Wood added roughly 1.75 million shares last week alone.
I must admit I initially had reservations about DraftKings, but there's no denying that the trend toward legal gambling is gaining steam. Online sports betting is one of the biggest gambling-related growth areas, and DraftKings is well-positioned to benefit from the trend.
For the year ended Dec. 31, 2020, DraftKings delivered adjusted revenue that grew 90% year-over-year, though losses surged 491% as the company scrambled to build out its user base and leverage its platform. This strategy is beginning to bear fruit: Its monthly unique players (MUP) grew by 29%, while the average revenue per MUP (ARMUP) increased 31%. This highlights DraftKings' ability to not only attract new users, but also increase the revenue it generates from existing users.
DraftKings is active in a dozen states, more than any rival, as it continues to reach critical mass. This is still a somewhat risky bet, but with the tailwind of legalized gambling and online sports wagering, the company could be among the biggest winners in the space.
Another stock that just hit the public markets that has been added to the ARK Next Generation Internet ETF in recent weeks is Skillz (SKLZ -2.49%). The mobile esports platform similarly opted for a speedier debut by merging with a SPAC in December.
The Skillz platform allows users to turn any game created for Apple's iOS or Alphabet's Android into a competition that users can enter for cash and prizes or to accumulate points. This certainly meets Wood's criteria of finding cutting-edge products, likely contributing to her decision to add 1.18 million shares last week.
For the year ended Dec. 31, 2020, revenue grew 92% year-over-year, while gross profit grew 91%. The company's net loss also accelerated, worsening to the tune of 408% as Skillz raced to add new members to increase the leverage of its platform. At the same time, the number of monthly active users (MAU) grew 121%, though the average revenue per paying monthly active user (ARPPU) slipped by about 12%.
Skillz's management estimates its total addressable market at roughly $86 billion, which pales in comparison to the $230 million in revenue the company generated in 2020. This at least partially explains Wood's interest in this young company.
Caveat emptor -- buyer beware
A quick look at these three companies reveals several noteworthy similarities, the most glaring of which is that none is yet profitable. Additionally, these companies fall squarely into the high-risk, high-reward category, with each carrying a somewhat lofty sticker price and a valuation to match. Skillz, DraftKings, and Roblox are currently selling at 29, 27, and 19 times forwards sales, respectively.
Companies that are new to public markets tend to be riskier and more volatile, so they represent just a small portion of ARK Invest's overall holdings. That said, given Wood's track record for keeping her finger on the pulse of technology and identifying disruptive companies that change the way we live, these fledgling upstarts certainly warrant further consideration.