It might finally be time for Cathie Wood's investing style to shine again. The CEO and co-founder of Ark Invest has been bouncing back lately. Her largest exchange-traded fund (ETF) is up 24% since bottoming out two months ago, and some of her smaller funds are faring even better.
Wood announces her Ark transactions daily. What was she buying on Tuesday? Some of the stocks she bought yesterday -- adding to her existing stakes -- include Shopify (SHOP -3.06%), Toast (TOST -2.32%), and Roku (ROKU -2.52%). They are all down 80% from last year's highs. Let's see what she might be seeing in these former market darlings that have fallen on hard times.
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Shopify
Shares of Shopify plummeted 14% on Tuesday, and that was a dip-buying dinner bell for Ark Invest. The e-commerce platform stunned the market by announcing layoffs for 10% of its staff, confirming concerns that business was starting to slow down for Shopify.
There have been a lot of surprising companies paring back their employee overhead lately, but Shopify is one of the biggest head turners. This was the same company that executed a 10-for-1 stock split this summer, signaling that the growth story was still intact. Now we find CEO Tobi Lütke warning his staff that he got the e-commerce revolution wrong. Online retailers have experienced a sharp deceleration in sales growth in recent quarters as consumers return to physical shopping.
Business was already showing some growing pains. Shopify's revenue growth decelerated to 22% in its previous quarter, and its bottom line fell woefully short of what analysts were targeting. On Wednesday morning it posted a mere 16% year-over-year increase on the top line for its latest quarter. It also posted a small adjusted loss when analysts were holding out for small profit.
Toast
Restaurant chains are turning to Toast in record numbers, and I'm not talking about sliced bread menu additions. The Toast platform does everything from manage inventory to process payments to play nice with third-party delivery apps. There are now more than 62,000 eatery locations relying on the Toast platform, adding more than 5,000 new units in its previous quarter for the first time.
Growth is on a tear. Revenue surged 90% to $535 million in its latest quarter, fueled by a 103% year-over-year surge in subscription revenue. Investors will get a fresh update in two weeks when Toast pops up with its second-quarter results.
The concern here is that the slowing economy and inflationary fears will eat into the restaurant industry. There are already signs that folks who are spending more at the grocery store and at the gas pump have less disposable income to spend on dining out and other leisurely pursuits. However, Toast is now trading for a roughly a third of last year's initial public offering price of $40. With the restaurant industry migrating to digital platforms and Toast offering a growing line of related modules, it's hard to bet against the company in the long run.
Roku
A lot of people are ending the night with a Roku remote in their hands. The country's leading streaming services hub had 61.3 million active accounts at the end of March, and they're definitely engaged. Roku users are averaging nearly four hours a day of streaming activity.
Roku is no longer a play on the hardware it pioneered to turn any TV into a smart TV; now it's a platform play. Its biggest revenue driver these days is the ad revenue it collects from marketers and streaming services paying up to get noticed on the platform. People may be spending more time away from home now than they were early in the pandemic, but Roku's audience as well as the total hours streamed are up 14% over the past year. Roku reports quarterly results on Thursday afternoon, and Wood added some shares to three of her ETFs on Tuesday.
Shopify, Toast, and Roku would all have to be five-baggers to get close to where they were at their all-time highs last year. They continue to be strong growth stocks despite the recent challenges. Cathie Wood might be on to something here.
