Cathie Wood has been a fixture in the investing world for decades, but the founder and CEO of ARK Investment Management really took the spotlight in 2020 when her five flagship exchange-traded funds (ETFs) crushed the broader market results. In fact, each of her ETFs delivered gains of more than 100%. The results were underpinned by Wood's focus on disruptive and emerging technologies -- and it could be just the beginning.
Finding companies that have market-leading products and services, boast significant secular tailwinds, and have large and growing addressable markets can deliver life-changing returns. Let's look at three companies that Wood has been buying lately that fit the bill.
While e-commerce was already experiencing wide adoption, it hit a tipping point last year, when even longtime holdouts turned to online retail in the face of the pandemic. It shouldn't be much of a surprise that Shopify (SHOP -1.81%) is among Cathie Wood's favorite investments -- held in three different ARK funds.
Shopify provides merchants with all the tools they need to set up and run an online business. Not only does it make setting up a website a snap, it also helps customize the look and feel of a company's digital presence. It handles many of the day-to-day necessities like payments, shipping, product management, inventory, and even payroll. Shopify also helps coordinate multi-channel businesses, integrating brick-and-mortar, social media, and online sales into a single interface.
Even after a blowout 2020, Shopify continued its impressive growth this year. In the first quarter, revenue grew 110% year over year, driven higher by subscription solutions that jumped 71% and merchant solutions that surged 137%. At the same time, its payments business accounted for 46% of gross merchandise volume (GMV), up from 42%, the result of more merchants adopting its payment solutions. Perhaps most importantly, the company continued to build its bottom line, after first achieving profitability last year.
Shopify has moved up the ranks and with last week's purchases is now a Top 5 holding in the ARK Next Generation Internet (ARKW 0.76%) ETF, the ARK Innovation (ARKK 0.54%) ETF, and the ARK Fintech Innovation (ARKF 0.33%) ETF. Shopify's market-leading position and the accelerating trend toward e-commerce were no doubt contributing factors, as is its estimated total addressable market of $153 billion. When considered in the context of its revenue of just $2.9 billion in 2020, the road ahead is long.
Finally, shrewd investors can get Shopify at a 23% discount compared to its recent highs.
Telemedicine was another trend that was already gaining traction before it took a permanent leap forward because of the pandemic. The use of technology to improve healthcare is gaining traction, which no doubt caught Woods' eye. Teladoc (TDOC 0.32%) is at the forefront of the digital health revolution, which shows no signs of slowing.
Teladoc is the leader in telehealth services, providing users with the tools they need to consult with a healthcare provider without ever leaving the comfort of their own homes. This not only helps reduce the spread of disease, but also expands healthcare availability to those who live in remote locations, hours from the doctor's office, or those who might lack access to child care.
The company recently expanded its offerings with the acquisition of Livongo Health, which helps patients manage chronic conditions via connected devices. It's estimated that there are more than 147 million people with chronic conditions in the U.S. alone, including those dealing with diabetes, hypertension, weight management, diabetes prevention, and behavioral health issues. Helping them cope between office visits not only improves the patient's quality of life, but also reduces the overall cost of care, resulting in a rare win-win.
Teladoc's first-quarter revenue grew 151% year over year, continuing its impressive trajectory from 2020. At the same time, total sessions and visits grew 109%. The company's loss per share more than tripled, though that was largely the result of stock options vesting in the wake of the Livongo acquisition late last year. The good news is that Teladoc raised its full-year guidance as adoption continues to accelerate.
In the wake of its results, Wood has been buying up shares of Teladoc, which is a Top 3 holding in three ARK funds -- ARK Genomic Revolution (ARKG 0.59%) ETF, ARK Innovation ETF, and ARK Next Generation Internet ETF.
Post-merger, Teladoc's addressable market has grown to an estimated $64 billion. Given its 2020 revenue of $1.09 billion, there's vast opportunity ahead.
Finally, the recent rotation out of technology and high-growth stocks hit Teladoc shares particularly hard, as fair-weather investors searched for recovery plays. Astute investors can ignore the noise and get Teladoc shares at a 44% discount.
Rounding out our trifecta of Cathie Wood stocks to buy now is a company that bills itself as the "anti-social media" platform -- Pinterest (PINS -0.83%). The platform acts as a digital cork board and discovery engine that helps inspire users to go out and enjoy life.
This online scrapbook helps people find, save, and organize all their favorite things from around the internet, providing them with a virtual space to envision what they want to achieve next. Pinterest users find inspiration to travel, renovate their kitchen, or plan a wedding, among other things. The company's positive vibe and focus have earned it a unique place among the social media set as the place to take the next step away from the keyboard and into life.
Business is booming. Pinterest's first-quarter revenue grew 78% year over year, driven by increased advertising by small- and medium-sized businesses and its rapid international expansion. This helped push the company ever closer to consistent profitability.
Monthly active users (MAUs) grew 30%, led by international MAUs that grew 37% and U.S. users that climbed 9%. Perhaps more importantly, increased engagement led to average revenue per user (ARPU) growth of 35%. Breaking that down, international ARPU surged 91% year over year, while U.S. ARPU jumped 50%.
Wood obviously believes that Pinterest will thrive, and it's now the seventh largest position in the ARK Fintech Innovation fund and a relatively modest 34th place in the ARK Next Generation Internet ETF. The company still has plenty of growth ahead, with the total addressable market estimated at roughly $500 billion.
Pinterest generated revenue of just $1.7 billion in 2020, which is a drop in the bucket compared to its $500 billion addressable market.
Investors can also get Pinterest at a 29% discount compared to its recent price.
The fine print
Given Wood's interest in these high-flyers, should investors follow suit? The answer will ultimately depend on the personal situation and temperament of the investor in question. Given ARK's tendency toward disruptive technology and high-growth companies, Wood's ETFs are subject to much greater volatility than some investors might be comfortable with.
It's also worth noting that while each of these stocks crushed the results of the broader market last year, they're certainly not cheap when measured using traditional valuation metrics. Shopify, Pinterest, and Teladoc are selling for 41, 20, and 13 times sales, respectively -- when a good price-to-sales ratio for a stock is generally between one and two.
That said, investors have been willing to pay up for the cutting-edge technology and potential for spectacular gains that each of these companies offers. Investors with a stomach for a little additional risk might just want to follow Wood's example.