There's no nice way to dress it up: 2021 was a lousy year for Ark Invest. Disruptive tech stocks held by its exchange-traded funds (ETFs) soared at the beginning of the pandemic only to fall out of the sky last year.
High-growth stocks have been hit hard, but that hasn't stopped Ark Invest founder and CEO, Cathie Wood from buying more. She recently snapped up shares of Block (SQ 4.28%), Zoom Video Communications (ZM 3.01%), and Coinbase Global (COIN 3.58%) at a relative discount.
This is the payment processing giant formerly known as Square. Block has expanded operations far beyond square-shaped payment processing devices. One of those operations involves owning lots of Bitcoin and letting customers use its digital wallet service, Cash App to conduct transactions with the leading cryptocurrency.
Sinking cryptocurrency prices have been dragging Block's stock price lower and that's not all. Signals from the Federal Reserve suggest several-interest rate raises this year to stifle inflation.
Higher interest rates are generally bad news for high-growth stocks, but this isn't stopping Wood from buying up more shares of Block. That's because Cash App (excluding Bitcoin) and the Square seller ecosystem are performing extremely well. During the 12 months ended Sept. 30, gross profit soared 43% year over year to $1.13 billion.
It's going to take more than rising interest rates to seriously alter Block's growth trajectory. The company began the fourth quarter with a new integrated TikTok service. Now, TikTok business users can link their short viral videos directly to their Square Online stores.
Zoom Video Communications
What a difference one year can make. While 2020 was a banner year for Zoom, the stock has fallen nearly 70% from its peak. Instead of running for the exits, Wood has been snapping up more shares of the videoconferencing platform.
Why is Wood so confident in Zoom's ability to bounce back? My guess is that she sees clear signs Zoom is here to stay pandemic or no pandemic. Stay-at-home orders during the three-month period ended Oct. 31 were relatively benign compared with a year earlier. Despite the tough comparisons, top-line revenue soared 35% higher during the company's fiscal third quarter to reach $1.05 billion.
It doesn't look like Zoom is slashing prices to keep customers either. On a GAAP basis, third-quarter operating income soared 51% year over year to $291 million.
Investors will want to keep their eyes open for the shifting nature of Zoom's revenue sources. Traditional companies desperate for work-from-home solutions could migrate toward videoconferencing solutions from traditional enterprise software giants like Microsoft. When it comes to virtual events aimed at general audiences, though, widespread familiarity with Zoom's user-friendly interface is going to be tough to beat for the foreseeable future.
This is one of Ark Invest's largest holdings at the moment, and it's easy to see why Wood finds the cryptocurrency trading platform so fascinating. It's already a cash-generating machine, and its best days are still up ahead.
Sinking cryptocurrency values and diminished enthusiasm for trading those cryptocurrencies aren't great for Coinbase's business at the moment. The current doldrums could quickly become a hurricane though. The number of verified users ready to take part in the next Bitcoin trading frenzy soared to 73 million at the end of September, and assets on the platform rocketed 608% higher year over year to $255 billion.
Charging fees on transactions that would make a stock trading platform blush is a great business, but it isn't the only way Coinbase will make money in the foreseeable future. This year the company expects to launch an NFT marketplace. With an enormous user base and $255 billion in assets on the platform, it could quickly become the world's largest.