Ark Invest CEO Cathie Wood made a name for herself by delivering robust returns for investors over the years. She focused on innovative growth companies that are disrupting both existing and emerging markets. While many of the stocks her funds favor have seen serious declines over the past year -- and such stocks may not be ideal for every investor -- those who have a long-term investment time horizon and the appropriate aptitude for risk tolerance can find an abundance of compelling stock picks among the lot.
Today, I'm going to talk about two of Cathie Wood's most widely held stocks that the market has seriously discounted over the past year but which still possess strong underlying businesses that can sustain durable growth. If you have $1,000 to invest in stocks right now, here's why you may want to take a second look at powerhouse companies Zoom (ZM 0.83%) and Shopify (SHOP 0.28%).
1. Zoom
Zoom is currently the top holding in Cathie Wood's flagship fund, ARKK Innovation ETF, with a portfolio weighting of 9%. The company may not be the favored investment that it was in the earlier days of the pandemic, but its key footprint within the multibillion-dollar video conferencing software market isn't something that investors should ignore.
In the most recent quarter, Zoom reported revenue of $1.1 billion, a 7% increase on a currency-neutral basis from the year-ago period. The company also generated net income of $48 million for the period, which is a solid level of profitability. However, it represented a decrease on a year-over-year comparison.
Digging deeper into the numbers, enterprise clients are driving the lion's share of growth for the business. In fact, Zoom's enterprise client revenue of $614 million comprised more than half of the company's total quarterly revenue and represented a notable increase of 20% from the year-ago period. Meanwhile, its cohort of high-spending customers contributing more than $100,000 in trailing-12-month revenue shot up 31% year over year. Zoom also generated free cash flow in the amount of $273 million in the quarter.
It's a great sign that larger businesses across a variety of sectors are continuing to adopt Zoom on a broad scale, and this is driving its business growth forward even in this challenging environment. As the need for quality conferencing software and the accompanying solutions Zoom offers to connect distributed teams continue to grow, the company is well positioned to deliver to those needs.
The company also continues to upgrade its offerings, with one of the most recent being its omnichannel customer service solution, Zoom Contact Center, which it launched earlier in 2022. This segment alone faces a total addressable market opportunity that could reach $165 billion by the year 2030. All of these factors can prove to be notable tailwinds for the stock's future growth and for its shareholders.
A $1,000 investment in the tech stock at its current share price would add approximately 15 shares to your portfolio.
2. Shopify
Shopify is the seventh largest holding in Cathie Wood's ARK ETF, with a portfolio weighting just shy of 5%. The e-commerce giant has seen shares sell off in past months as growth has decelerated on a pandemic comparison, and it has gone from profitability to reporting generally accepted accounting principles (GAAP) net losses in recent quarters.
However, these movements aren't stemming from inadequacies in Shopify's underlying business. This dip back into unprofitability has been due to a few factors, a major one being the company's aggressive expansion strategy this past year to build out its network, offerings, and solutions for merchants. In doing so, the company aims to strengthen its long-term competitive advantage. In addition, a decline in key equity investments coupled with an increase in stock-based compensation have also been factors. However, as Shopify President Harley Finkelstein noted in the most recent earnings call,
If you look over the seven years since IPO, five of those years, we've been profitable. We plan on becoming profitable again. We said this year as an investment year, but this is a company that thinks deeply about managing expenses, growing revenue. But ultimately, this is a company that likes to be profitable, and we will get back there.
Shopify's acquisition of Deliverr earlier in 2022 is already augmenting the company's growth trajectory and has the potential to help it considerably expand its network of merchants, while boosting conversion rates over the long run. In the third quarter, the company's first full quarter with Deliverr as part of its business, the cohort of orders processed by the Shopify Fulfillment network with delivery of two days jumped by more than 65%. Management expects this to increase by more than 75% by year's end.
Shopify's total Q3 revenue of $1.4 billion represented a 22% increase from the prior-year period. While that's a steady clip of growth, it's worth noting that this revenue represented a 52% compound annual growth rate (CAGR) from the same quarter in 2019. Meanwhile, the company's Q3 gross merchandise volume (GMV) of $46 billion jumped 15% on a currency-neutral basis, which was nearly double that of the growth the broader U.S. retail sector experienced in the quarter at 9%.
A $1,000 investment in Shopify at its current share price would add approximately 29 shares to your portfolio.
