Cathie Wood finds herself in a place that she hasn't been in a long time. The founder and CEO of Ark Invest is trouncing the market in 2023, something that she hasn't done since her breakout 2020 run. She also started selling shares of Roku (ROKU 0.66%) late last week. She consistently added to her stake in the streaming video pioneer through 2022 and earlier this year.
Ark Invest dumping shares of Roku on Thursday and Friday of last week stands out. It's the first time since late 2021 that Wood has sold Roku shares.
If you're a Roku bull, don't worry. I'll get to that shortly. If you're a Roku bear, don't pop the cork on this fine bottle of confirmation bias. I'll get to that bubbly a little later.
Image source: Getty Images.
Channel surfing
Wood selling some of her Roku position isn't a red flag -- or a white flag for that matter. She may have sold roughly $13.3 million worth of the stock between the last two trading days of last week, but have you seen Roku moving lately? Last week's better-than-expected quarterly report is just the latest positive catalyst. The stock has soared 87% since bottoming out just two months ago.
Ark Invest still owns almost $750 million of the stock between the two exchange-traded funds with a position in Roku. The two transactions to sell account for less than 2% of Wood's current position. Put another way, she still has a much larger position -- by value -- in Roku than she did in the previous months when she was still adding to that position.
Roku is now the second-largest position for Ark Invest across all of the fund family's positions. Lightening up slightly -- for now -- on a position that has shot up to nearly the top of the portfolio's weighting isn't a vote of no confidence. It's a rational rebalancing act.
Tesla is the only stock with a larger weighting for Wood, and here's where the bad news for the bears comes in. Many of Wood's largest holdings started to prove mortal a few weeks into 2021. Tesla was an outlier. It beat the market in 2021, becoming Ark Invest's largest position. She sold a lot of Tesla as 2021 played out, using those proceeds to buy some sinking stocks that didn't recover.
Wood's selling Tesla didn't mean she was losing faith. One can argue the same thing is happening now with Roku.
Streaming along
Roku isn't at its best right now. It's losing money, and ad revenue per user contracted sequentially for the first time in its public history. Roku's bottom line has weakened for seven consecutive quarters. However, with Roku exceeding all four of its guidance metrics in last week's report and now expecting to deliver positive annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2024 it's easy to see the light at the end of this tunnel.
With 70 million active accounts, Roku is leading a growing industry. It's the market share champ in North America, and Roku keeps padding its lead. Users are streaming an average of 3.8 hours a day, so engagement is bananas. Its new guidance calls for sequential bottom-line improvement for the first time since the first quarter of 2021. Can you imagine how the numbers will look once the connected TV ad market improves?
Roku is still a top streaming video stock. Wood and Ark Invest have more riding on Roku -- despite the recent selling -- than any other stock but Tesla. Wood isn't giving up on Roku. She obviously didn't give up on Tesla when she began trimming that outgrown position back in 2021. She's giving Roku space to breathe, and every monster rally can use a good exhale here and there.
