Many people these days are looking to Cathie Wood, the founder and CEO of ARK Invest, for stock insights. Her company's tech-focused exchange-traded funds (ETFs) have delivered impressive results, and retail investors are eager to follow where she leads.
So we asked three Motley Fool contributors to take a look at some of ARK Invest's holdings and pick out a few top tech stocks from among them that they think would be great buy-and-hold investments now. Their choices: Twilio (TWLO 2.27%), Shopify (SHOP 4.51%), and Roku (ROKU 3.85%).
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This customer engagement platform is just getting started
Brian Withers (Twilio): Twilio is one of the top 10 holdings in Cathie Wood's ARK funds. Overall, ARK Invest owns more than 2% of the company, and its shares occupy prominent positions in three of its funds, including the largest, the ARK Innovation ETF. This tech stock seems to be one of her favorites, as she has consistently added to the number of shares owned over the last year. Let's look at why you might want to grab a few shares yourself and hold on to them for the next decade.
Twilio is a developer-focused platform that gives software engineers the power to embed automated communications and messaging tools into legacy platforms. This has a number of advantages. It gives companies the ability to upgrade their customer engagement efforts with text messages, voice calls, video chats, and more without overhauling their existing infrastructure. It allows software developers to test and learn on a small scale to understand the platform's capabilities and see what kinds of messaging works best before rolling out those communication tools to more customers. And while these easy-to-use messaging APIs (application programming interfaces) were already powerful, the company recently made an acquisition that will make them even smarter.
Back in October, Twilio announced it was buying Segment.io, which operates the leading customer data platform. That platform brings together all the customer data feeds from around a client's enterprise into one consolidated view. By giving them a 360-degree perspective of their customers' digital journeys, Segment.io provides client companies with a more detailed view of their customers, and enables messages to them to be more targeted and better personalized.
This acquisition has gotten off to a great start. Last quarter, Segment contributed $45 million in revenue to Twilio's top line. Additionally, its founder and CEO, Peter Reinhardt, has been tapped to lead one of Twilio's three research and development units. Reinhardt will be focused on the overall data platform, including Segment, and Sendgrid's email and marketing campaigns.
The integration of Segment is just getting started. As Twilio figures out how to unlock the potential of the customer data platform to enable smarter and more targeted messaging, it will be a powerful tool for its clients. Even more exciting for investors is that the company is forecasting annualized organic growth of 30% over the next four years -- not including the impact of the Segment acquisition. This seems to be a great time to pick up some shares of this top Wood stock with an eye toward holding them until 2030 or beyond.
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A pioneer in empowering retailers to go online
Danny Vena (Shopify): There's no denying that Shopify is one of Cathie Wood's favorite stocks. The e-commerce giant is a staple in three of ARK Invest's six flagship ETFs. It's the second-largest holding in both the ARK Next Generation Internet and the ARK Fintech Innovation ETFs, and the No. 6 holding in the ARK Innovation ETF. The three funds combined hold in excess of 1.1 million shares of Shopify, valued at more than $1.6 billion.
It's easy to see why Wood is so entirely sold on Shopify. It provides the world's largest platform designed to help merchants create and manage e-commerce sites. Its comprehensive set of templates and tools make it a snap for small and medium-sized businesses to offer their goods and services online, but that's just the beginning.
Once a client's e-commerce site is up and running, Shopify offers a host of solutions to help manage everyday business tasks including payment processing, advertising, fulfillment and shipping, and sales analytics. It also simplifies the complexities of integrating a growing list of merchant sales channels, including social media apps, e-commerce sites, and brick-and-mortar stores. And it offers a more robust set of solutions for enterprise-level merchants.
While it would be easy to assume that the bulk of Shopify's growth is already in the rear-view mirror, nothing could be further from the truth. In fact, Shopify's merchant count has surged to 1.7 million, up from just 1 million less than two years ago.
After a blockbuster 2020, Shopify started 2021 off with a bang. In the first quarter, total revenue grew 110% year over year to $989 million. That was an acceleration from Q4 2020's 94% growth rate. At the same time, adjusted net income soared more than 11-fold to $254 million.
Shopify is riding the wave of e-commerce adoption, and that trend is expected to continue. Globally, online retail sales are expected to reach roughly $6.39 trillion by 2024, up from $3.35 trillion in 2019, according to a forecast by eMarketer. Not only that, but e-commerce is expected to represent 22% of total retail sales by 2024, up from just 14% in 2019. Shopify is well-positioned to reap the rewards of this large and growing opportunity.
The company generated more than $2.9 billion in revenue in 2020, which is a drop in the bucket compared to a total addressable market that management estimates at $153 billion.
Given Shopify's industry-leading position, its strong execution, and the significant secular tailwinds propelling its growth, it's not hard to see why this stock is a Wood favorite. Just buy Shopify and sock it away for the next decade. You'll be glad you did.
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You can bet on this entertainment shift
Chris Neiger (Roku): You've probably already noticed the shift in the entertainment industry away from traditional pay-TV providers and toward streaming services. An estimated 6.6 million people cut the cord on cable and satellite TV services in 2020, and forecasters expect that by 2024, more than one-third of U.S. households will have done the same.
Cathie Wood has noticed the shift too, and that's why she owns shares of Roku in both her Ark Next Generation Internet ETF and her Ark Innovation ETF.
Roku has built one of the most popular video-streaming platforms in the U.S. and Canada. It boasted 53.6 million users at the end of the first quarter, during which users streamed more than 18 billion hours of content on its platform. So Roku's streaming platform is popular -- but how exactly is it benefiting from this evolution in the world of entertainment?
First, each time a viewer signs up for a paid service via Roku's platform -- whether it's Disney+, Hulu, HBO Max, or any other one -- the company gets a cut of the subscription fee. In addition, the company sells ads that are shown on its platform. Between those two income sources, Roku's platform revenue is growing at a rapid pace -- it rose by 101% year over year in the most recent quarter. That's great news considering that platform revenue accounts for 81% of the company's total sales.
And not only is Roku's user base growing and generating more sales for the company, but the amount the company earns from each of its users continues to increase. Average revenue per user (ARPU) in the first quarter was $32.14, up 32% year over year.
The fact is that Roku is benefiting from the growth in new video subscription services, and there's no sign that this trend is slowing down. Consider that the average U.S. household now pays for four video streaming services.
With Roku's platform already the top dog in Canada and the U.S., ad spending on streaming platforms on the rise, and a continual shift in audience to video streaming services, it's no surprise why Wood holds Roku stock in two of her funds. Retail investors should add some to their portfolios as well.
