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3 Cathie Wood Tech Stocks to Buy Now

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This fund manager has made a name for herself on Wall Street.

Fund manager Cathie Wood -- the founder and CEO of Ark Invest -- has become a source of inspiration for many young investors. Her long-term mindset and focus on innovative technologies bucks the status quo on Wall Street, where many analysts concern themselves with near-term performance and backward-looking valuation metrics.

With that in mind, we asked three Motley Fool contributors to write about Cathie Wood tech stocks. Keep reading to see why Roku (ROKU -0.76%), Square (SQ -0.84%), and Zoom Video Communications (ZM -0.97%) made the list.

Young adults watching streaming content together.

Image source: Getty Images.

The operating system for streaming media

Trevor Jennewine (Roku): Roku helped pioneer connected TV (CTV). In 2008, the company released its first streaming device, featuring an operating system purpose-built for television. Today, Roku has established itself as the leading streaming platform in the U.S. and Canada, holding 38% and 31% market share, respectively. And it remains the only purpose-built operating system for CTV, creating a best-in-class user experience.

As a result, Roku now connects 55 million global consumers with content publishers and marketers, and it monetizes this ecosystem through billing services and digital ads. In an effort to accelerate growth, Roku has doubled-down on its ad-based business model.

In 2020, it introduced the OneView ad tech platform, allowing marketers to launch targeted and measurable ad campaigns across desktop, mobile, and CTV. This means brands can reach consumers across a range of devices, then optimize those ad campaigns to drive a greater return on investment. That's not possible with traditional linear TV.

Likewise, Roku has invested aggressively in its own ad-supported streaming service, The Roku Channel. In May the company debuted 30 Roku Originals, sparking record streaming numbers over the following two weeks. And in August, Roku released 23 more original series, adding momentum to the flywheel that powers its business.

Management explains it like this: As Roku offers more content, viewers benefit from a greater selection of programming. That brings more viewers to the platform, meaning advertisers benefit from a wider audience. In turn, that helps Roku capture more ad spend, furthering its ability to invest in new content.

This virtuous cycle has been a powerful growth driver. Case in point: During the second quarter, traditional TV viewing time dropped 19% and total streaming time (across all platforms) dropped 2%, but Roku saw a 19% increase in user engagement, bucking the industrywide trend. More importantly, the company has delivered a strong financial performance over the long term.

Metric

Q2 2019 (TTM)

Q2 2021 (TTM)

CAGR

Active accounts

30.5 million

55.1 million

34%

Revenue

$905.9 million

$2.3 billion

60%

Data source: Roku SEC filings, YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate. 

Looking ahead, Roku has a massive market opportunity. IMARC Group values the global television ad market at $278 billion, but only a fraction of that figure has made its way to CTV. As more consumers cut the cord and marketers shift budgets away from traditional entertainment, Roku is well positioned to benefit. That's why this tech stock looks like a smart buy right now.

The shape of consumer finance to come

Eric Volkman (Square): Have you noticed that Square's specialty point-of-sale (POS) terminals -- the 21st century equivalent of cash registers -- are becoming more prevalent? I have, and that's one reason I continue to be bullish on this stock.

Those POS terminals are the entry point for Square, allowing the company to provide merchants with an ever-expanding suite of services. One easy comparison to make is Apple, which has grown to monster size thanks to a similar expansion strategy.

Recently, Square reached another important milestone when it received a banking license. This move means the company can provide its clients with more banking services, opening a number of new growth opportunities that should make it more profitable over time.

Speaking of profitability, Square has posted positive GAAP income over the past four consecutive quarters. In fact, net income reached $204 million during the most recent quarter, a dramatic flip from the $11 million it lost a year earlier. To add, this metric is also several times higher than the profit of $39 million it posted during the first quarter.

But there's something else I like about Square: The company clearly has its finger on the pulse of modern consumer finance. As evidence, it recently acquired "buy now, pay later" specialist Afterpay. This Australian fintech taps into a disruptive trend, providing consumers with access to financing at checkout. Compared to traditional credit cards, this allows consumers to make four interest-free payments over a six-week period.

Of course, the acquisition is hardly cheap at $29 billion. However, Square is paying that sum in stock, meaning it won't put a hole in the company's balance sheet.

While no one can predict the future, especially not in the ever-changing world of retail, I feel confident in one thing: Square is a smart and opportunistic business, and its management team will continue to capitalize on new trends as they arise.

Executive engaging with colleagues through Zoom's videoconferencing platform.

Image source: Zoom Video Communications.

A second act for Zoom

Jeremy Bowman (Zoom Video Communications): Zoom was one of the biggest winners during the pandemic, going from a niche business product to a household name. It helped friends, families, students, and employees engage remotely, allowing them to stay connected despite social distancing protocols.

After peaking near $600 per share last October, Zoom stock has since fallen nearly 50%, perhaps because investors believe the growth narrative is over. However, Wood remains bullish, as Ark owns a significant stake in Zoom through two different funds: the Ark Innovation ETF and Next Generation Internet ETF. This evidences Wood's belief that Zoom will continue to be a dominant and disruptive internet stock. In fact, during an interview in March, she predicted that this tech company would take over a good portion of the legacy telecom infrastructure, much in the way it's already substituting for phone calls.

The disruption from the delta variant also makes it clear that there won't be a seamless return to the office, and there is no going back to a pre-pandemic era. Many office workers prefer to work from home, and companies have demonstrated that they're perfectly capable of operating in that kind of environment. While offices won't disappear completely, a hybrid work environment seems likely to persist, and Zoom will play a major role in making that work.

The company is set to report second-quarter earnings on Aug. 30, and it will be the first report to lap a full quarter of pandemic-era results. Even so, analysts expect revenue to increase nearly 50% to $990 million, and for adjusted earnings per share to rise from $0.92 to $1.16. That may look like a high bar for Zoom, but a beat and strong guidance would likely propel the stock higher.

Trevor Jennewine owns shares of Roku and Square. The Motley Fool owns shares of and recommends Apple, Roku, Square, and Zoom Video Communications. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$56.08 (-0.76%) $0.43
Apple Stock Quote
Apple
AAPL
$148.11 (-1.96%) $-2.96
Block, Inc. Stock Quote
Block, Inc.
SQ
$63.38 (-0.84%) $0.54
Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$75.40 (-0.97%) $0.74
ARK Innovation ETF Stock Quote
ARK Innovation ETF
ARKK
$36.00 (-0.88%) $0.32
ARK ETF Trust - ARK Next Generation Internet ETF Stock Quote
ARK ETF Trust - ARK Next Generation Internet ETF
ARKW
$43.74 (-0.93%) $0.41

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

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