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ARK Invest Is Buying These 2 Tech Stocks: Both Could Double Your Money

By Trevor Jennewine - Mar 26, 2021 at 8:15AM

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This investment firm's biggest fund has been handily beating the market, and Square and Roku are among its top current holdings.

ARK Invest has only been around since 2014, but it is already developing a reputation as one of Wall Street's best-performing asset managers. Headed by CEO Cathie Wood, the company offers various financial products, including exchange-traded funds (ETFs) built around innovative secular trends like autonomous technologies, next-generation internet, and genomics.

Over the last three years, the company's flagship product -- the ARK Innovation ETF (ARKK -1.44%) -- has skyrocketed in value by 200%, crushing the 52% return of the S&P 500 over the same period. Given Ark's track record for picking winners, investors should note that Roku (ROKU -2.76%) and Square (SQ -4.25%) are two of the top four holdings in the Innovation ETF.

Here's why you should consider adding these two ARK-endorsed tech stocks to your portfolio.

Digital bar graph with upward trend.

Image source: Getty Images.

1. Roku: The essential streaming platform

During a recent interview, Wood noted: "Roku is becoming the operating system of streaming TV." To that point, the company provides the leading smart TV operating system in the United States and Canada, with market shares of 38% and 31%, respectively. That scale gives Roku an advantage over its rivals and makes it an essential distribution platform for both premium and free streaming services.

Last year, Roku bolstered its offerings of subscription content, bringing services like AT&T's HBO Max and Comcast's Peacock into the fold. The company also added content from more than 100 free linear TV channels and a Live TV Guide to the ad-supported options on The Roku Channel. These moves helped Roku grow its user base to 51.2 million active accounts, up 39% from the prior year.

Just as noteworthy, its growth strategy is also driving user engagement higher. Viewers streamed 58.7 billion hours on Roku's platform last year, up 55% from 2019. In other words, streaming hours are growing more quickly than active accounts, meaning each viewer is spending more time engaged with Roku. That's a big deal, and marketers have taken notice.

Last year, ad spend on Roku's OneView platform more than doubled, driving a 24% increase in average revenue per user. Put simply, marketers are willing to pay more to reach Roku's expanding audience, more than half of whom don't have cable. That has powered strong revenue growth.

Metric

2017

2020

CAGR

Revenue

$513 million

$1.8 billion

51%

Source: Roku SEC Filings. CAGR: compound annual growth rate.

As more viewers cut the cord, connected TV should capture an increasingly large portion of digital ad spend. And as the leading streaming platform in the U.S. -- which accounts for roughly 40% of digital ad spend worldwide -- Roku is well-positioned to be a long-term winner.

2. Square: The rising fintech platform

Square's businesses tap into another momentous secular trend: the growing use of digital payments. The financial tools and services it offers to consumers and merchants have put it in a position to pursue what it calculates is a $160 billion market opportunity, though thus far, it has only taken a low single-digit-percentage share of it.

Square's seller ecosystem provides software, hardware, and payment processing services to support both online and physical stores. For instance, it offers specialized point-of-sale solutions for restaurants, retailers, and appointment-based businesses, as well as payroll and team-management software.

As a whole, Square's portfolio of products simplifies business ownership for its clients, and that has translated into rising profits from its seller ecosystem.

Metric

2017

2020

CAGR

Seller ecosystem gross profit

$777 million

$1.5 billion

25%

Source: Square SEC Filings. CAGR: compound annual growth rate.

Square's Cash App empowers consumers, allowing them to send, spend, and invest money in a variety of ways. Beyond basic peer-to-peer payments, Cash App users can also spend their balance with the Square Cash Card, receive direct deposits, buy stocks or Bitcoin -- or even file their taxes.

Together, these tools and services have turbocharged user engagement, powering incredible growth in the Cash App's ecosystem's profits.

Metric

2017

2020

CAGR

Cash App ecosystem gross profit

$47 million

$1.2 billion

197%

Source: Square SEC Filings. CAGR: compound annual growth rate.

Despite its strong performance in recent years, Square's trailing-12-month revenue still represents only a small fraction of its total addressable market, so this fintech company still has plenty of room to grow.

A final word

As of March 23, Square was the third-largest position in the ARK Innovation ETF, representing 6.2% of the portfolio, and Roku was the fourth-largest holding at 5.6%. Moreover, ARK has added to both of these positions this month. Given the firm's track record of outperformance and the growth potential of Roku and Square, both of these stocks look like good long-term investments.

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Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$94.20 (-2.76%) $-2.67
Block, Inc. Stock Quote
Block, Inc.
SQ
$83.44 (-4.25%) $-3.70
ARK ETF Trust - ARK Innovation ETF Stock Quote
ARK ETF Trust - ARK Innovation ETF
ARKK
$42.41 (-1.44%) $0.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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