It wasn't long ago that Cathie Wood was one of Wall Street's most celebrated investors. Wood is best known for investing in disruptive, innovative companies with high growth potential. From the start of 2020 to its peak in February 2021, Wood's ARK Innovation ETF (ARKK 0.07%) gained over 230%.
Since then, the fund has dropped 70% as inflationary pressures and rising interest rates weigh on many growth stocks. Despite this, the fund continued to attract investors and brought in $1.5 billion in investor funds in the first half of 2022. Included in this fund are three fintechs: Robinhood Markets (HOOD -1.76%), Coinbase Global (COIN -5.10%), and Block. (SQ -1.57%). Let's find out a bit more about these three fintechs that Cathie Wood's investment firm is betting on.
1. Robinhood Markets
Robinhood's goal is to make investing available to everyone. The online trading platform was one of the first to introduce commission-free stock trading, which many others in the industry have since copied. However, its revenue model -- called payment for order flow (PFOF) -- has come under scrutiny from regulators.
Robinhood stock peaked shortly after going public last year but since then has dropped over 80% as investor concerns about its growth come into the spotlight. Robinhood's total revenue dropped over 43% through six months this year, and it saw its assets under custody (AUC) drop by 31% in the second quarter, its lowest level since 2020. Not only that, but the New York State Department of Financial Services fined the company $30 million earlier this month after accusing Robinhood of violating anti-money-laundering rules.
Wood's Ark Innovation ETF owns over 20 million shares of Robinhood, making it the 19th-largest investment representing 2.3% of the total portfolio fund as of Aug. 18.
2. Coinbase Global
Coinbase Global provides customers with a cryptocurrency exchange to buy and sell crypto assets and infrastructure for developers to build decentralized applications. The exchange benefited big time in 2021 when cryptocurrency prices exploded, leading to a trading frenzy in things like Bitcoin, Ethereum, and Dogecoin.
This year has been a different story for cryptocurrencies. Bitcoin has dropped over 50% since the start of the year as risk assets get punished amid high inflation and rising interest rates. Despite 51% user growth from the first half of last year, Coinbase has seen trading volume on its platform fall by 34%. As a result, it swung from a $2.4 billion net income through six months last year to a $1.5 billion loss in the first half of this year.
Falling revenue isn't the only concern. Coinbase has gotten caught up in regulatory crosshairs, with the Securities and Exchange Commission (SEC) announcing insider trading charges against former Coinbase employees, saying that some of the cryptocurrencies involved should have actually been classified as securities.
On the positive side, the company recently announced a deal with BlackRock, the world's largest asset manager, to provide institutional clients with access to its platform.
Wood cut her stake in Coinbase at the end of July by 1.3 million shares, but her Ark Innovation ETF still owns over 4.6 million shares of Coinbase, making it the 8th-largest investment representing nearly 4.3% of the total portfolio fund as of Aug. 18.
3. Block
Block, formerly Square, initially provided sellers with ways to accept credit card payments. Since then, it expanded through its Cash App product, which helps users manage money and buy and sell Bitcoin, and has also added Afterpay, the buy now pay later (BNPL) platform.
Like Coinbase, Block rode the wave of active cryptocurrency markets and raked in $10 billion in Bitcoin revenue in 2021 -- or 57% of its total revenue for the year. This year, its Bitcoin revenue has dropped by 44% over six months compared to last year's period.
On a positive note, Block's gross payment volume grew 26% through the year's first half, helping transaction-based revenue increase 24%. It also saw subscription-based revenue rise 65%, thanks to its BNPL platform and subscriptions through its Cash App. Block CFO Amrita Ahuja expects gross profits through the Cash App and Square sides of the business to grow in the second half of this year while scaling back on planned investments.
Block is Wood's largest fintech holding and the 4th-largest investment in the Ark Innovation ETF and represents about 4.7% of the total portfolio as of Aug. 18.
