Cathie Wood is head of Ark Invest -- an investing firm known for its exchange-traded funds (ETFs). One of these funds, the ARK Innovation ETF, is particularly popular and has handily beaten the market average since inception. Given this outperformance, Wood's popularity with retail investors is understandable.
That said, the ARK Innovation ETF is down this year and trailing the returns of the market. But I'm fairly confident it will bounce back in time because it holds many quality stocks. Financial technology (fintech) company Square (SQ 3.19%) and streaming-TV platform Roku (ROKU 2.72%) are two particularly great companies, in my opinion, with a high probability of strong returns over the coming decade. And Skillz (SKLZ 6.39%) might be worth a small bet if you have a long time horizon, like 10 years. Here's why.
Say goodbye to cash
According to the World Bank, Sweden currently ranks 22nd in global gross domestic product (GDP) -- not the largest by any means but still a major economy worth watching. And according to Dr. Jonas Hedman, Sweden's cash in circulation decreased roughly 50% from 2008 to 2018. Swedes are increasingly going cashless by choice, setting up a possibility that Sweden could become the world's first functionally cashless country in the next few years.
In 10 years, I don't think Sweden will be the only country that's largely moved away from cash. Consider Generation Z, which generally refers to anyone born between 1996 and the mid-2000s. The mid-2000s is when Apple's iPhone started a mobile revolution. Therefore, Gen Z is the first generation that grew up with the mobile phone being a central part of their life. Because of this, fintech companies like Square are increasingly seen as something normal, not novel.
Square is making particularly astute moves when it comes to securing its long-term future. Just last month, the company started providing financial services to U.S. teenagers, with adult supervision of course. As one of the only fintech companies addressing this teen demographic, today's 13-year-old kid will be a 23-year-old adult ten years from now, entering the work force, and having grown up with Square.
Square has many business verticals, and there's a lot more to consider with a Square investment today. However, thinking big picture about the rising tide of cashless transactions over the next ten years, I believe Square is a boat you want to be on.
The end of traditional pay TV?
Multichannel video programming distributor (MVPD) is a term used to describe traditional pay-TV services, like cable and satellite. According to research company The Diffusion Group, the majority of U.S. households will no longer subscribe to a MVPD by 2026 at the latest. By then, the majority of households in the U.S. will be streaming video content on some sort of smart-TV platform like Roku.
That's just five years from now. Imagine what can happen from 2026 to 2031 when the majority of people no longer use traditional pay TV. Businesses make decisions based on what consumers want. Therefore, it seems likely to me that pay-TV channels and companies will increasingly get neglected by corporate budgets, accelerating a decline in quality programing and, consequently, hastening a day when pay TV no longer exists as it does today.
In ten years, it's possible all video content will be accessed via streaming channels, which would benefit a platform like Roku immensely. Consider that the trend has already started. In the third quarter of 2021, management said "the top ten cable-TV advertisers doubled spend on the Roku platform year over year" following consumers as they migrate away from traditional TV channels. It seems Roku's audience of 56.4 million active accounts will only get bigger and more valuable in the coming decade.
Finally, Roku stock is down over 50% from its high earlier this year, and some Wall Street analysts are taking a victory lap. However, the analyst community has severely underestimated the earnings potential of this company over the past year. Considering these analysts are largely incentivized to think about the current year (and they're getting it wrong), how much might they be underestimating Roku's earnings potential over the next ten years?
Think bigger with gaming
There are plenty of reasons to tread cautiously when it comes to Skillz. For starters, consider its cash flows. Through the first three quarters of 2021, it's burned $103 million in operating activities. It's used another $141 million in investing activities, which includes some acquisitions. The only reason it's sitting on a strong cash position of $540 million is stock offerings -- the business hasn't built its financial situation.
In the third quarter of 2021, Skillz saw an increase in active users and paying active users, which is central to an investing thesis in the stock. And this will remain an important part of the thesis for the next couple years, for sure. However, if we think longer out, like ten years, it's possible that Skillz could be something far different than it is today.
First, consider Skillz's brand strategy. Brands are starting to discover that mobile games with cash payouts can be a unique way to create awareness. For example, in 2020, the American Cancer Society partnered with Skillz to raise money and build support for its mission. If more nonprofit and for-profit entities incorporated mobile gaming into their advertising strategies over the next decade, it would create a huge tailwind for Skillz's business.
Additionally, Skillz CEO Andrew Paradise said, "We are exploring expansion opportunities beyond video games by gamifying other industries and experiences, ranging from exercise to education." Imagine being able to win money from your morning jog or from continuing education. I'm not saying it will be easy or that the path is straightforward -- I'm saying this is a big idea that could play out over the next ten years and is something Skillz is focused on.
Paradise often says Skillz is "building the competition layer of the internet." That's bigger than any single mobile game title and even bigger than mobile gaming itself. If the company executes on this vision over the next decade, the stock will likely also be a winner.
Holding stocks for 10 years and even longer is a great idea; you want to give your companies time to become multi-baggers and compound your shareholder value. However, it can be hard to even predict the next ten minutes, to say nothing about 10 years. Therefore, it's likely that there will be challenges and opportunities with Square, Roku, and Skillz that no one -- myself included -- could have ever seen coming.
That said, you can think long term while still recognizing that nothing is set in stone yet. It's actually a good mentality to foster -- a vision for the future with constant refinement as the facts and our insights develop.
Investing is a journey.