Cathie Wood became one of the more recognizable names on Wall Street due to her preference for high-growth tech stocks and perceived industry disruptors. Her flagship exchange-traded fund (ETF), Ark Innovation ETF (NYSEMKT: ARKK), was one of the early investors in innovative tech companies like Tesla, Zoom Video Communications, and Block.
Wood isn't much of a buy-and-hold investor. Her firm, Ark Invest, trades frequently, and investors often follow its moves due to its popularity. While that isn't always a good thing, here are three stocks that Wood is buying that you should consider adding for the long term.
1. Twilio
Twilio (TWLO 1.47%) is a company that people indirectly interact with more than they probably realize. Its communication platform as a service (CPaaS) powers chat, voice, email, and video communication for widely used apps like Uber, Airbnb, and Instacart.
Wood has been an investor in Twilio since 2016, so she's experienced the wild ride it's been on. From its June 2016 initial public offering until February 2021, Twilio's stock increased over 1,400%. It's now down 85% since that peak, but its story mirrors that of many top-name growth stocks.
Investors have been wary of Twilio as its revenue growth slows and more competitors come to market, but it's still positioned to continue its market share dominance, which is a more important long-term predictor than current slowdowns. Twilio's 24% market share is 10 percentage points more than its second-closest competitor.
The CPaaS market is expected to grow around 29% annually until 2027, according to management consulting firm MarketsandMarkets. Considering Twilio's resources (and ability to expand via acquisitions), it's feasible to think its revenue could grow at a similar pace. A CAGR of 29% would double its revenue in less than 2.5 years.
With a price-to-sales (P/S) ratio of around 3, it seems like a cheap option with a high upside in a turnaround.
Data by YCharts
2. Genius Sports
Legal sports betting has exploded in the U.S. in recent years, and it doesn't seem to be slowing down anytime soon as more states jump on the train. This has led the way to popular sports betting apps like FanDuel and DraftKings, but an under-the-radar player in the industry is positioning itself wisely.
Genius Sports (GENI 0.39%) isn't an app or sportsbook; it's essentially a big data company focusing on sports. Using lots of data and technology like machine learning, Genius Sports generates deep insights into probabilities and other factors relevant to sports betting. It then sells these findings to sports leagues, sportsbooks, and casinos, ideally giving them an advantage when setting odds and such.
Genius Sports still isn't profitable, but it's headed in the right direction. In the first quarter of 2023, net losses shrunk by 37%, and revenue increased by 13%. Better-than-expected revenue growth also caused the company to increase its fiscal year revenue guidance from $391 million to $400 million.
Sports betting isn't legal in every state, so it's hard to say how the market will expand, but Genius Sports is in a great position by not being consumer-facing. It's relatively easy for consumers to bounce from app to app or sportsbook to sportsbook, but it's likely that most of those companies will need to rely on Genius Sports regardless. It's a competitive advantage they literally can't afford to give up.
3. Roku
Roku (ROKU -10.29%) is the No. 1 TV streaming platform in North America and currently Ark Invest's third-largest holding, accounting for just under 8% of the fund.
Even as people further embrace outdoor activities, Roku's engagement has continued to be impressive. In Q1 2023, it had 71.6 million active accounts -- up 17% year over year and a company record -- and total hours streamed was up 20%. Roku's revenue didn't follow the trend, increasing a mere 1%, but given the current state of the advertising world, it wasn't a total surprise.
Ark Invest predicts Roku's 2026 revenue could reach $32.1 billion, mainly due to a spike in video advertising. A key path to that number will be capitalizing on partnerships like the one it recently inked with Shopify. The new partnership will allow merchants to sell products directly from Roku with a couple of remote clicks.
The $32.1 billion in revenue is Ark's bullish forecast, but even its more modest $14.4 billion base-case projection is a noteworthy increase from Roku's $3.1 billion in 2022 revenue. Whether Roku can hit these targets remains to be seen, but even after rallying over 85% year to date (as of July 12), Roku's stock seems fairly priced with a P/S ratio of just over 3.3.
