Robinhood, the online trading platform that disrupted traditional brokerages by offering free stock trades, serves over 13 million investors. Millennials account for the majority of its users, and the app is widely cited as a driving force behind the recent Reddit-fueled rallies in so-called "meme stocks" like GameStop.
However, Robinhood investors don't just buy meme stocks. In fact, the top 50 stocks on Robinhood (those most-widely held by users of the service) actually include a diverse mix of value, growth, and speculative stocks -- and analysts often watch that regularly changing list to gauge the shifting interests of younger investors.
Many of Robinhood's investors have also likely heard of Cathie Wood, the celebrated growth investor who manages the six ARK ETFs (exchange-traded funds). Wood's core investment strategy, which prioritizes a company's growth and disruptive potential over its near-term valuations, creates funds that are likely much more aggressive than a typical Robinhood investor's portfolio.
That said, Robinhood investors and Cathie Wood still have overlapping interests in several growth stocks. Let's examine three of Cathie Wood's favorite stocks that Robinhood investors also appear to adore: Tesla (TSLA -6.99%), Palantir (PLTR -4.07%), and Twitter (TWTR -3.54%).
When Tesla CEO Elon Musk considered taking the electric vehicle company private for $420 per share in August 2018, Wood claimed such a deal would "greatly" undervalue the electric vehicle maker. Wood declared Tesla would be worth $700 to $4,000 per share within five years, and dubbed it a "deep value stock."
Musk seemed to heed Wood's advice, and Tesla's stock subsequently delivered a seven-bagger return in less than three years. Wood recently declared that Tesla's stock, which now trades at about $600 a share (due to a five-for-one stock split last August) could still surge another fivefold to $3,000 by the end of 2025, according to Wood's estimates.
That confident outlook explains why shares of Tesla now account for over 10% of the holdings in three of ARK's ETFs: ARK Innovation (ARKK -4.02%), ARK Autonomous Technology & Robotics (ARKQ -3.11%), and ARK Next Generation Internet (ARKW -4.32%).
Wall Street expects Tesla's revenue and earnings to rise 53% and 84%, respectively, this year. The stock price isn't a bargain at 110 times forward earnings and 12 times this year's sales -- but it's still cheaper than many other high-growth tech stocks in this frothy market.
Those valuations, along with Tesla's brand appeal and its early mover's advantage in the EV space, also make it an attractive long-term growth play for Robinhood investors.
Shares of Palantir, the data-mining firm that generates more than half of its revenue from government contracts, now accounts for 1.3% of ARK Innovation and 1.7% of ARK Next Generation Internet. It's also been gaining more attention from Robinhood investors since its direct listing last September.
Palantir's platform collects data from disparate sources to help organizations make quick decisions. It's used by a large number of U.S. government agencies, and some of its work -- especially the use of its technology to deport undocumented immigrants -- is controversial.
However, Palantir continues to secure new government contracts while offering lighter versions of its services to enterprise customers. Its revenue rose 47% in 2020, and it expects at least 30% revenue growth this year.
Palantir remains unprofitable, but its gross and operating margins are expanding and its net losses could gradually narrow as it reins in its stock-based compensation. The stock is undeniably expensive at 27 times this year's sales, but Palantir could justify that premium if it fulfills its ambitious goal of becoming the "default operating system" of the U.S. government.
Twitter stock accounts for 1.2% of ARK Innovation and 2.9% of ARK Next Generation Internet, and it's also becoming a top holding for Robinhood investors. The social media company likely impressed both Cathie Wood and millennial investors with its ambitious growth targets in late February.
Specifically, Twitter declared it could more than double its annual revenue by 2023. It believes it can increase its mDAUs (monetizable daily active users) from 192 million at the end of 2020 to "at least" 315 million by the end of 2023, and that it can boost its average revenue per user (ARPU) by launching new features.
Those forecasts sound impressive, but I'm not convinced Twitter can grow its mDAUs by an average rate of 18.5% over the next three years -- especially as faster-growing competitors like Snap and Pinterest split the fragmented social media market. Its proposed plans for boosting its ARPU -- including Patreon-like subscription plans for accounts and new ad products for smaller businesses -- are also uninspiring.
Analysts expect Twitter's revenue to rise 29% this year as it returns to profitability, but the stock doesn't seem particularly cheap at 52 times forward earnings and 10 times this year's sales. It could be a bargain in retrospect if Twitter hits its lofty growth targets, but I personally prefer to stick with Snap or Pinterest instead of this slower-growth social media stock.