2 Cathie Wood Growth Stocks to Buy Now

Popular asset manager Cathie Wood continues to crush the market. Ark's Next Generation Internet ETF is up 41% over the past year, topping the 31% return of the S&P 500. And among the 49 positions in the fund, PayPal (PYPL 0.64%) and Unity Software (U 2.04%) stand out.

Both stocks have actually outperformed Ark's ETF over the past year, and both companies have strong prospects for future growth. Here's why you should consider adding shares of PayPal and Unity to your portfolio.

Image source: Getty Images.

1. PayPal

PayPal is one of the best known brands in the fintech space. Its platform connects 371 million consumers with 32 million merchants around the world, enabling digital payments across websites, mobile apps, and physical retail locations. That scale gives PayPal an advantage -- consumer adoption drives merchant acceptance and vice versa, creating a network effect.

To reinforce that advantage, the company is investing aggressively in its platform. For instance, PayPal launched QR Code payments last year, enabling consumers to make in-store purchases with the PayPal or Venmo mobile wallet. The company also introduced a Buy Now, Pay Later (BNPL) feature, allowing consumers to split purchases into four interest-free payments.

In both cases, these new services are driving engagement. According to PayPal's data, QR Code users spend 19% more that the average user, and BNPL boosts payment volume by 15% for merchants. More importantly, these aren't PayPal's only new products and services. That list also includes support for cryptocurrency, the Venmo credit card, and business profiles on Venmo.

Collectively, these growth initiatives have boosted active accounts and transactions per account. Put another way, more people are using PayPal, and people are using PayPal more frequently.

Data source: PayPal SEC filings. TTM = trailin-12-months. CAGR = compound annual growth rate.

Over the same period, PayPal's revenue surged from $14.5 billion to $23.8 billion, growing at 18% year. And its operating margin expanded 330 basis points, reaching 18.1% in Q2 2021. This showcases the company's operating leverage, meaning it's becoming more efficient as it scales.

Looking ahead, PayPal is well positioned to maintain that momentum. During the Q2 earnings call, CEO Dan Schulman announced the pending launch of a new mobile wallet. According to Schulman, this "super app" will initially feature high-yield savings accounts, bill pay features, and messaging capabilities, as well as all the old functionality. But each wallet will also be unique, relying on artificial intelligence to create personalized deals and offers.

In total, PayPal plans to add 25 new capabilities to the super app in the coming quarters, and Schulman expressed confidence in its ability to boost engagement. That's why now looks like a good time to buy this growth stock.

Image source: Getty Images.

2. Unity Software

Unity's business plays into several big trends: interactive video games, augmented reality (AR), and virtual reality (VR). Its platform helps creators build immersive, real-time 3D content, then monetize that content across smartphones, personal computers, gaming consoles, and AR/VR devices. More specifically, Unity offers two distinct software products: Create Solutions and Operate Solutions.

Create Solutions is a subscription-based product, providing developers with tools to create, edit, and run content across Windows, Mac, iOS, Android, and major gaming consoles. And Operate Solutions is a revenue-sharing product, enabling developers to monetize content through digital ads and in-app purchases. Collectively, these two products allow Unity to generate recurring revenue, and grow alongside its clients.

Last year, an average of 2.7 billion monthly active users engaged with content that was created or operated with Unity, up 63% from 2019. And applications built on Unity averaged 5 billion downloads per month, up 41%. In short, Unity has achieved incredible scale -- and the company is still growing quickly.

Data source: Unity SEC filings, Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rate.

Going forward, Unity still has plenty of room to grow its business. Of course, its platform is a natural fit for game developers -- 94 out of the top 100 game studios are Unity customers -- but the company is also gaining traction in industries like architecture and filmmaking. And during the most recent quarter, Unity added three new automakers, an eyewear retailer, and an appliance manufacturer to its list of clients.

Currently, management puts its market opportunity at $29 billion, but that number is expected to climb as new opportunities arise across gaming, AR/VR, and other industries. That's why this growth stock looks like a smart investment.