Cathie Wood is the chief executive officer and founder of wealth management firm ARK Investment Management. The firm offers investors access to several exchange-traded funds, all of which revolve around disruptive and innovative technologies.
Over the past year, Wood has become known as an ardent fan of the metaverse and cryptocurrency. In recent weeks, the technology investor doubled down on her existing position in Coinbase (COIN -4.65%) and initiated a position in metaverse darling Matterport (MTTR -0.46%).
Although both stocks have been on a downward spiral during the broader sell-off in technology stocks, investors have reason to believe that both Coinbase and Matterport present interesting long-term investments at current valuations.
The metaverse is in its early innings
Matterport's spatial data technology allows users to create digital twins of physical spaces, such as commercial real estate and factories. Although Matterport's primary end market is physical property, its underlying technology could be a huge catalyst for metaverse development. The metaverse is a term used to describe a virtual world in which participants can interact and socialize with one another via gaming and commerce, among other use cases.
Although we are in the very early innings of metaverse development, large technology companies have already shown significant commitment to development of this next phase of the internet, dubbed Web3. For example, the social media conglomerate and parent of Facebook changed its name to Meta Platforms in October 2021, as the company turns its primary focus to pioneering the metaverse.
Matterport went public in 2021 through a special purpose acquisition company (SPAC). After the transaction, the company formed strategic alliances with FAANG leaders Meta Platforms and Amazon. Shortly thereafter, the stock ballooned to $37.60 per share in November 2021. However, since the broader sell-off in tech stocks, Matterport has cratered, and now trades for about $7.
Despite the decline in its stock price, Matterport has illustrated to investors that its transition from selling primarily low-margin hardware to higher-margin subscription software is beginning to take shape. Last year, Matterport generated $61.3 million in software revenue, an 47% increase year over year. On the other hand, product revenue (hardware) was slightly lower year over year, as the company reported $32.5 million in 2021 compared to $33.1 million in the year prior.
In late March, Cathie Wood's Autonomous Tech. & Robotics ETF (ARKQ) initiated a position in Matterport stock, buying nearly 535,000 shares. Although this is not Wood's first foray into metaverse investing, it is important to note that the initial position comprises only 0.25% of this specific fund's weight. It is possible that Wood sees long-term value in stocks such as Matterport, which have fallen precipitously from all-time highs. Moreover, the savvy tech investor has added Matterport to her catalog of innovative companies playing an integral role in the metaverse.
Doubling down on crypto
Another disruptive technology in which Wood has repeatedly shown enthusiasm is cryptocurrency. In fact, Wood doubled down on her claim that Bitcoin would reach $1 million per coin within the next decade.
One of the most polarizing cryptocurrency investments widely available is the crypto exchange, Coinbase. Coinbase has been trading publicly for exactly one year. And during the last 12 months, the company's stock price has been volatile, to say the least. As of now, Coinbase stock is down more than 50% from its initial public offering (IPO).
Although Coinbase has experienced a significant price decline, the company's underlying financials tell a compelling story. Last year, Coinbase generated $7.4 billion in revenue, which represented a 545% year-over-year increase. What is particularly encouraging is that Coinbase's revenue growth is exceeding that of its expenses, thus providing the company with favorable operating leverage.
Coinbase's net income was $3.6 billion in 2021, which represents 49% of revenue. By comparison, the company's net income margin was 28% in 2020. This level of profitability has allowed Coinbase to make several strategic investments in future growth segments such as non-fungible tokens (NFTs), which are not reflected in the results above.
Currently, ARK Invest holds positions in Coinbase in three ETFs: ARK Innovation (ARKK), ARK Next Generation Internet (ARKW), and ARK Fintech Innovation (ARKF). Moreover, the firm has been buying on recent dips, adding nearly a half-million shares during the last week of March. As of now, Coinbase carries a weighting of 6% in ARKK, 9% in ARKW, and 10% in ARKF. This translates to the second-largest position in ARKW and ARKF, respectively, while it is the fifth-largest position in ARKK.
Keep an eye on valuation
Matterport's alliances with big tech, as well as its growing subscription business, should bode well for future revenue opportunities and margin expansion. Additionally, Coinbase is yet to monetize new investments in areas such as NFTs, and it is possible that the stock price does not yet reflect the potential tailwinds of these opportunities.
Both Matterport and Coinbase are hovering around 52-week lows. However, when analyzing the fundamentals of each business, coupled with the support of institutional capital, investors may be encouraged to initiate positions at these valuations.