Tuesday wasn't a quiet day for Cathie Wood. The co-founder, CEO, and top stock picker of ARK Invest added to a few existing positions across her family of growth-oriented exchange-traded funds (ETFs). Forever the deal seeker, she added to some of her beaten-down positions.
Wood added to her stakes in 2U (TWOU -8.50%), Rocket Lab (RKLB -4.31%), and Coinbase Global (COIN 5.23%), stocks that are down 70%, 78%, and 86%, respectively, from their 52-week highs. Let's see why she added to her positions in all three investments on Tuesday.
Online education has been a school of hard knocks for investors lately. The niche seemed to finally be in the right place at the right time in early 2020, when physical classroom experiences were temporarily suspended, but the provider of online graduate programs for universities as well as shorter virtual boot camps for folks seeking professional certifications has been meandering now that brick-and-mortar learning is back in session.
2U posted mixed financial results earlier this week. Revenue of $232.2 million for the third quarter was essentially flat with the $232.4 million it served up a year earlier as well as the $232 million that analysts were modeling. It did post a slightly larger-than-expected adjusted quarterly loss.
Growth has stalled. 2U reaffirmed its summertime guidance, calling for 2% top-line growth for all of 2022. The good news is that it is executing on its strategic realignment efforts to cut costs. Its adjusted EBITDA and net loss improved substantially in the third quarter. It sees adjusted EBITDA growing 74% this year despite treading water when it comes to revenue growth. A summertime buyout rumor flunked out, but if it's able to grow its business next year on an improving cost structure, it can move to the head of the class on its own.
2. Rocket Lab
A fan of the space race, Wood has been aggressively building up her position in Rocket Lab over the past two months. The space services business has now launched 32 different Electron missions, deploying 152 satellites into orbit along the way. The only U.S. company that launches more rockets is Elon Musk's privately held SpaceX.
ARK Invest owns Rocket Lab in a pair of its ETFs, and both of them added to those stakes on Tuesday. The timing is significant. Rocket Lab reports quarterly results shortly after Wednesday's market close.
One can argue that there isn't a lot in the upcoming financial report that would send shares of Rocket Lab itself into orbit. Analysts don't see Rocket Lab's window of profitability opening until 2025. There is real revenue here -- $128.9 million over the past four quarters, and rising -- and the total addressable market is substantially larger. The stock's $2.4 billion valuation may seem rich for a profitless upstart, but that's not likely what is drawing investors to the stock. SpaceX completed a round of financing this summer at a valuation of $125 billion. Picking up the silver medalist in this growing niche for just 2% the market cap of the leader seems like a decent wager for risk-tolerant investors like Wood.
Coinbase is one of the 10 largest positions across ARK Invest's combined holdings, but it's been a rough ride of late. The crypto market has been rocked harder than the stock market, and this week we saw another trading exchange tap out. Binance signed a nonbinding letter of intent to acquire struggling rival FTX.com on Tuesday.
A shakeout among digital currency platforms would normally be seen as a positive in most industries, but it's sending an entirely different message here. We've seen several high-profile exchanges and decentralized finance hubs falter this year, and that's wearing on the confidence of many crypto traders. Coinbase stock plummeted 11% on Tuesday following the news, and crypto prices themselves continue to tumble. Wood has been adding to her Coinbase position on the way down, and it's not a good look. Coinbase has the financial fortitude to be one of the last players left standing, but you can't have a recovery in crypto if traders don't trust the viability of the exchanges.