The best time for long-term investors to generate life-changing returns is while stocks are down. With the Nasdaq Composite index down over 30% year-to-date and many individual stocks down more, this is possibly one of the times investors will look back on a decade from now as the start of their outstanding returns.

Cathie Wood and ARK Invest believe that to be true, and the firm has been buying tech stocks at these depressed prices. Specifically, ARK Invest has loaded up on Twilio (TWLO 0.88%) and Unity Software (U -0.89%) over the past month. With shares of each company down over 74% in 2022, should you follow in Wood's footsteps? Let's find out.

The case for Twilio

Shares of Twilio have plummeted this year, resulting in a rock-bottom valuation. Shares of Twilio now trade at just 3.6 times sales -- its lowest valuation since going public in 2016. Given this historically inexpensive price, Wood hasn't been afraid to buy shares: ARK Invest has added over 120,000 shares of Twilio across all of its funds since the start of September.

It's surprising Twilio is down this much, considering it is still the primary communications and engagement platform for many large businesses. If you have ever received messages from Airbnb (ABNB 2.49%) about your stay or a text from Lyft (LYFT 1.81%) saying that your ride is available, you've experienced Twilio firsthand. Over 275,000 businesses rely on Twilio to facilitate customer engagement, which puts the company on top when it comes to digital communications, according to IDC MarketScape.

This is a critical solution that wise business owners continuously have at their fingertips. Customer engagement might not be fully recession-proof, but keeping customers engaged during economic turmoil can be an effective way to retain loyal customers and survive a rough period. And Twilio has seen stable revenue improvements. In Q2, total revenue reached $943 million, which soared 41% year-over-year and 33% on an organic basis.

What's not appealing about Twilio, however, is that it lost over $1 billion and burned almost $254 million in free cash flow over the trailing 12 months. Management has plans to achieve non-GAAP operating profitability in 2023, but the main concern is that once the company starts to pull back spending to become profitable, rivals could gain ground. 

That said, given the company's dominance and relationships with some of the best brand names in the world, Twilio could keep its edge, and this risk could be overly magnified. Therefore, you might want to follow in Wood's footsteps and add a few shares of Twilio to your portfolio.

The case for Unity Software

Unity has also been crushed this year following multiple rough spots for the company. Unity's monetization services stumbled after ingesting bad data, causing revenue guidance for 2022 to plummet -- management now forecasts just 17% to 22% year-over-year revenue expansion for the full year.

The company has started to rebuild and retrain its data set to fix these problems, showing that it is making steps in the right direction. To spur this further, however, Unity announced plans to merge with ironSource (IS). Unity is looking to buy ironSource at a significant premium of $4.4 billion in stock, but this wasn't taken positively by investors, who think that Unity is grossly overpaying. 

While these concerns are valid, it's important to realize that Unity still has a healthy business underneath this turmoil. It is the leading game development platform, with some estimates putting Unity's market share at 48%.

Additionally, over 1,000 customers generated $100,000 or more in trailing-12-month revenue on Unity's platform to build, grow, and operate video games, signaling continued reliance on this top dog. The company might be stumbling now, but ironSource's monetization services could supplement Unity's struggles and help it continue dominating over the long haul.

The company's rough year has caused the stock to tank. Shares now trade at only eight times sales -- its lowest valuation since going public in 2020 -- which seemed to attract Wood's attention.

ARK Invest has acquired over 66,000 shares of Unity Software since the start of September, signaling that Wood and ARK believe that the company will be able to overcome the obstacles ahead. That could be the case, so investors with a diversified, long-term portfolio might want to nibble at Unity. However, investors might not want to take a considerable stake like Wood is today, given the company's high-risk profile.