Cathie Wood's hot start in 2023 is being whittled away. The Ark Invest co-founder, CEO, and chief stock picker has struggled in recent months. Her largest ETF is now trading lower than where it was at the end of January.
She's not sitting still. Wood continues to make moves, letting investors know what she's buying and selling at the end of every trading day.
What is she buying now? Wood added to her stakes in Roku (ROKU -10.29%), Block (SQ 2.32%), and Unity Software (U 3.47%) on Wednesday. What does Wood see in these three growth stocks that are trading well below their previous highs? Let's take a closer look.
Roku
Starting lines matter in sizing up the success of Roku investors. Shares of the leading operating system for streaming services through smart TVs are up 72% this year, but other stock charts are less than flattering. This is the first of three stocks we're looking at that's currently trading 86% below its 2021 all-time peak.
Roku is keeping viewers entertained. It had 73.5 million accounts on its platform at the end of June, 16% more than it was serving a year earlier. Usage is up 21% (it's encouraging to see it growing faster than the active user count), but platform revenue rose just 11% in its latest quarter. The weak ad market for connected TV is weighing on its upside, but this is still the third consecutive quarter of better-than-expected revenue growth for Roku.
Image source: Getty Images.
Roku updated its third-quarter guidance in early September. It now sees $835 million to $875 million for the quarter that ended last week, up from the $815 million it was targeting in late July. It also now sees a smaller adjusted loss as measured by earnings before interest, taxes, depreciation, and amortization than it was originally forecasting.
The midpoint of its new guidance calls for 12% year-over-year growth on the top line. It might not seem like a lot, but it would be Roku's third consecutive quarter of accelerating revenue gains. The bottom line has been more problematic, but recent layoffs and other cost controls should help turn its lack of profitability around sooner rather than later.
Block
It's been a rough couple of years for fintech stocks, and Block shareholders have felt the pinch. The company behind the popular CashApp peer-to-peer payment platform and merchant payments enabler Square has seen its stock fall 86% since peaking in the summer of 2021. Even during this year, a robust one for growth stocks, Block has surrendered a third of its value.
The business is still growing, posting back-to-back quarters of 26% increases year over year on the top line. But the appetite has still cooled for the stock on Wall Street.
Citi analyst Peter Christiansen lowered his price target on the shares from $90 to $65 on Wednesday. He sees the reasons for the stock's sharp decline, which has seen it lose nearly half of its value since the end of July. Square's division head was a surprising departure from the company; there was a 48-hour Square outage, possibly alienating some of the merchants on the platform. And data from third-party services suggests that growth in its latest quarter is clocking in below consensus expectations.
However, the new Citi target is still 55% higher than where the shares are now. Christiansen believes that the correction that has taken the shares near their pandemic lows is an overreaction. He still removed the stock from his list of top picks, but Wood doesn't see it that way. She obviously had no problem adding to her existing Block position after the analyst note was published Wednesday morning.
Unity
Another stock that's losing the game for investors is Unity. The shares are trading marginally higher in an otherwise buoyant 2023, but the stock has plummeted more than 40% since its summertime peak. Like Block, Unity is trading a whopping 86% below its all-time high in 2021.
The game-engine developer has been humbled since it stumbled last month. Unity announced plans to charge developers a new fee that would essentially add $0.20 whenever a game was installed on a phone on top of the existing subscription. Developers revolted, and Unity would cave on the new fee two weeks later.
A bull would argue that Unity's backtracking from the controversial fee shows it is responsive to its customers. Investors are more concerned about what the episode will do to Unity's reputation. It's a bad look, of course, but developers now know that they can revolt the next time they want a new fee or a rate hike reversed.
