Famed investor Cathie Wood has a few stocks in her ARK Innovation ETF portfolio that have taken a beating in 2021. The popular investment manager gravitates toward innovative growth companies; hence, the name ARK Innovation.
Roku (ROKU -5.06%) and DraftKings (DKNG 1.43%) are two stocks in her portfolio that are both down more than 20% year to date. Let's look at each in more detail to see what could make them excellent buys right now.
Streaming-media juggernaut Roku was one of the prime beneficiaries of the coronavirus pandemic. As people spent a lot more time at home than usual, they looked to streaming content as one of the safest forms of entertainment. As a result, Roku added new customers, and engagement among existing viewers skyrocketed. Unsurprisingly, Roku's revenue increased by 57% in fiscal 2020.
As more and more people get vaccinated and the economy reopens, Roku is experiencing adverse side effects. Active accounts and customer engagement remain high, increasing 23% and 21%, respectively, year over year in the third quarter. Instead, it's supply-chain bottlenecks that are hitting Roku negatively. The gross profit margin on its players has dropped from a positive 15% a year ago to a negative 15% today.
Still, the supply-chain issues will eventually pass. Meanwhile, long-term prospects for Roku are excellent as more consumers switch to streaming content from linear TV and also as the company expands internationally. Roku's stock is down 23% year to date in 2021, making it an attractive entry point for investors.
For game lovers, DraftKings offers a variety of ways to spend their time, whether it's mobile sports betting, daily fantasy sports, or iGaming (casino-style games).
The company is gaining traction as state regulators increasingly approve the gaming services it offers. In fact, DraftKings is now live in 15 states for mobile sports betting and five states for iGaming. What's more, the company recently received approval to operate in New York State, which has the potential for an estimated $1 billion in annual gross gaming revenue.
Going live in a new state brings DraftKings a wave of new customers. Indeed, the company increased monthly unique players to 1.33 million in the nine months ended Sept. 30, up from 679,000 in the same time last year. Those consumers are spending more on its platform, too. The average revenue per player increased to $61 from $41 the year before. That's all excellent news.
So why is the stock down 28% year to date in 2021? DraftKings is spending heavily on sales and marketing to attract new players and entice them to make wagers. In the nine months ended Sept. 30, the company spent $703 million on sales and marketing. Meanwhile, revenue came in at $823 million during that same time.
The good news for shareholders and potential investors is that DraftKings' marketing spend does not need to remain at the current level forever. It's this high primarily because the company keeps launching in new states -- a good step as this expands its potential market. Once those initial rounds of spending are completed, DraftKings has the potential for healthy profit margins. After all, it is much less expensive to operate an online gaming company than a physical one.
Overall, these two excellent companies' stocks are down due to short-term factors. That could make this an ideal time to add shares of Roku and DraftKings to your portfolio.