Cathie Wood was quiet last week. The co-founder, CEO, and ace stock picker of Ark Invest didn't add to more than a single position in her firm's popular exchange-traded funds on any trading day, and she didn't buy anything at all on Friday.
She woke up hungry on Monday.
Ark Invest added to several of Wood's favorite positions on Monday, including Zoom Video Communications (ZM -0.82%), Twilio (TWLO -1.49%), and Tesla Motors (TSLA -1.92%). Let's consider why she might have decided to build up her stakes in these three names.
Image source: Getty Images.
Zoom Video Communications
Your "Zoom room" isn't getting used as much as it was during the early days of the pandemic, and that's naturally weighing on the videoconferencing leader. Zoom Video Communications was a rock star in 2020, when it was rapidly adopted out of necessity as we sheltered in place and practiced social distancing. It was a key tool allowing work teams to communicate, students to learn, and millions of us to socialize. But we're mostly not social distancing anymore.
Revenue that previously skyrocketed with triple-digit percentage growth rates has decelerated to single-digit percentage upticks. The last seven quarters of year-over-year gains illustrate Zoom's dramatic slowdown.
- Q4 2021: 369%
- Q1 2022: 191%
- Q2 2022: 54%
- Q3 2022: 35%
- Q4 2022: 21%
- Q1 2023: 12%
- Q2 2023: 8%
In Zoom's last quarterly report, delivered in late August, management guided for a 5% top-line increase for the fiscal period that ends this month. It's already going the other way on the bottom line, as net income has declined year-over-year in the last two reports.
This isn't a good look, but Zoom's fundamentals are holding up better than its stock chart. Enterprise customers are sticking around, and they spent 20% more with the company over the past year than they did in the previous 12 months. Zoom also has a strong balance sheet, with minimal debt and more than $5 billion in cash and short-term securities. The stock trades for 24 times trailing earnings, but if we measure it by enterprise value instead of market cap, that multiple drops down to 19. It goes without saying that when the economy is heading into a recessionary environment and interest rates are rising, it's good for a company to have strong liquidity and negligible debt.
Twilio
Another stock that has sold off sharply from its early pandemic highs is Twilio. The leading provider of in-app communication solutions is a giant working behind the scenes to let you know when your food delivery driver is nearby or that the villa rental you were trying to book is available.
There's a lot of money to be made in giving smartphone owners the ability to get more things done without having to leave the app they're using, and Twilio's revenue rose by a better-than-expected 41% in its latest reported quarter. Management did predict that its growth would slow to 31% for the third quarter, and it will deliver numbers for that period next week. The platform is doing fine, but some of its clients -- particularly social networking sites, consumer on-demand businesses, and crypto exchanges -- have struggled in recent months. Wood is comfortable buying in just days before a telltale financial update.
Tesla Motors
The only stock that Ark Invest bought on Thursday of last week was Tesla Motors, and Wood added more shares to that position on Monday. Tesla was one of the few Ark Invest stocks to move higher in 2021, and Wood was routinely selling shares of it to add to some of her sinking positions. But now that its share price has been retreating, it makes sense that she would shift tactics.
Wall Street wasn't impressed with the leading maker of electric vehicles following its financial update on Monday. Inventory levels are rising and its gross margin is contracting. Turmoil in China could also drag on its performance. But despite these near-term issues, Tesla Motors remains an aspirational brand in a booming niche.
Zoom, Twilio, and Tesla Motors are all trading well below their highs, but they're all still compelling growth stocks at attractive price points. And after a fairly quiet week on the buying front, Wood was ready to commit more funds to all three.
