After crushing the broader market in 2020, famed investor Cathie Wood had a much tougher go of it in 2021. The CEO of ARK Invest saw all of her management firm's exchange-traded funds (ETFs) lag the market last year. However, don't be fooled. There remain some excellent picks within these ETFs.
And since many of them have been hammered recently, you would be scooping them up at a bit of a discount. Let's look into two of Cathie Wood's stocks that could make a strong comeback this year after being southbound for much of 2021: Teladoc (TDOC -1.42%) and Roku (ROKU 0.94%).
1. Telehealth is here to stay
Despite its woes in the stock market, Teladoc's financial results show that it has maintained the momentum it gained at the pandemic's peak. Teladoc recorded revenue of $522 million in the third quarter, 81% higher than the year-ago period, and total patient visits jumped 37% to 3.9 million.
One of Teladoc's greatest strengths is its network of more than 50,000 doctors across 450 subspecialties. It seeks to become a one-stop shop for basic consultations with physicians across as many subspecialties as possible. That's why the company made a strong push toward offering various specialty-care services, including mental and behavioral health, dermatology, and more.
In October 2020, Teladoc acquired Livongo Health, which provides health management services for people with diabetes and other chronic health conditions. The deal cost Teladoc $18.5 billion in cash and stock. It also helped broaden Teladoc's offering in specialty care, and there are plenty of clues that the company's strategy is working. Last year, the healthcare giant reported that specialty visits were serving as a gateway to its platform, attracting patients who later decide to opt into other services.
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Teladoc's network of physicians is also a powerful competitive advantage since few competing telehealth services boast an ecosystem nearly as wide. That's why it will be difficult to pry Teladoc's customers away from the company.
The ongoing COVID-19 pandemic accelerated the adoption of telehealth, but it's not new -- and considering the benefits it provides patients and physicians, it is clearly here to stay. The ability to have basic consultations from the comfort of one's home means physicians who might have previously been beyond a patient's reach are now accessible. Conversely, doctors can consult within a wider network than just a specific geographical area.
Further, telehealth helps patients save money -- between $19 and $121 per visit, according to some estimates. These factors should help telemedicine grow at a rapid clip in the coming years, and Teladoc is ideally positioned for this opportunity. The company isn't profitable yet; in the third quarter, it recorded a net loss of $84.3 million, which was much worse than its net loss of $35.9 million in the third quarter of 2020. This may help explain why its shares are down more than 50%.
However, with growing revenue, increasing visits, and a strengthening competitive edge thanks to its vast network, Teladoc will eventually erase the red ink on the bottom line. For investors willing to be patient and hold on to this healthcare stock for a while, the eventual payoff should be worth it.
2. A leading streaming platform
Roku was one of the so-called pandemic stocks, companies whose services were highly sought after at the peak of the coronavirus outbreak. Indeed, with people stuck at home for much of 2020, many turned to streaming entertainment to pass time, which helped Roku sell more of its legacy devices.
Then came 2021 and a reopening economy, enabled by the growing availability of coronavirus vaccines. With people spending less time in front of their televisions, this may have spooked investors. So it's not too difficult to make sense of Roku's less-than-stellar performance in the past year, down some 40%.
But Roku's future remains bright, and here's why. While it does sell its legacy streaming devices -- these are the gadgets that allow users to receive Roku's programming -- it racks up higher revenue and juicier margins from the platform itself. This includes advertising revenue, fees for licensing its operating system to television manufacturers, fees it charges to companies such as Netflix to have their own button built into Roku's remote devices, and more.
Image source: Getty Images.
Thanks to these various streams of income, Roku continues to generate strong financial results. In the third quarter, the company's total revenue came in at $680 million, up 51% vs. the third quarter of 2020. This growth was driven entirely by the company's platform revenue, which soared by 82% year over year to $583 million. Meanwhile, Roku's player revenue dropped by 26% year over year to about $97 million.
While demand for Roku's devices dropped compared to last year (when it increased abnormally as a result of the pandemic), it remains above its pre-pandemic level, according to management. However, the average selling prices for these units decreased 7% from a year ago. CEO Anthony Wood said that the company "chose to insulate consumers from higher costs" of bringing these devices to market.
As long as demand for Roku's signature gadgets remains high, however, even giving them away to customers for free might not be such a terrible idea. After all, the Roku player is a great way to get more customers into the ecosystem.
Here's what matters most to the company in the long run: an increasing number of active accounts. This metric grew by 23% year over year in the third quarter to 56.4 million. That still leaves significant room for growth. As management argues, there's a potential market of 1 billion broadband households worldwide. That's why, despite its poor showing in the stock market last year, investors shouldn't give up on Roku just yet.
