Cathie Wood has her eye on growth stocks, whether it's in cryptocurrencies, electric vehicles, or just tech in general. And while some of those investments have been performing exceptionally well, many stocks in her Ark Innovation ETF are struggling significantly.
Roku (ROKU 1.53%), Roblox (RBLX +1.05%), and UiPath (PATH 5.39%) are all top holdings in the exchange-traded fund and their stock prices are down more than 20% this year.
What's wrong with these three Cathie Wood stocks, and are they worth buying at their reduced prices?
NASDAQ: ROKU
Key Data Points
1. Roku
Down a mammoth 40% so far this year, Roku's shares have been in a tailspin for months. The big reason for that hasn't been a surprise: In February, news broke that Walmart plans to buy Vizio for $2.3 billion. Vizio makes smart TVs that compete with Roku, and having a behemoth like Walmart acquire the business and funnel money into its operations is certainly not an appealing prospect for Roku investors.
Meanwhile, Roku has been diving deeper into the launch of more types of products to diversify its streams of revenue. The problem, however, is that as it does that, its margins are likely to worsen. Roku makes the bulk of its gross margin not from its hardware sales, but from its software. Its platform makes it easy to create a hub for all your subscriptions to different streaming services. And while you could buy a Roku-enabled TV, you could also just buy one of its streaming devices to do that, and effectively turn a "dumb" TV into a smart one.
Roku generated 19% year-over-year revenue growth in the first three months of 2024 but its gross profit only rose by 15%. With operating losses in each of the past four quarters and a potentially more competitive and difficult landscape ahead, it's not hard to see why investors have grown apprehensive about the stock.
Roku's stock may be down big, but with a challenging path back to profitability, this isn't a stock I'd rush to buy right now as things could still get worse from here on out.
NYSE: RBLX
Key Data Points
2. Roblox
Roblox is an immensely popular gaming platform that attracts a younger demographic of users. The company is making efforts to cater to an older audience, including adults, with limited success. Attracting that wider audience is going to be key as it leans more into advertising to take advantage of more revenue opportunities.
In a Roblox experience, users create virtual worlds for their avatars to populate and interact through games or in social settings. Game creators (who are also the users) can easily add restaurants, buildings, and cars in these virtual worlds. Imagine if those were McDonald's restaurants or Tesla vehicles that users were adding. It would be a subtle yet easy way to add marketing opportunities within the game for Roku (and advertisers) to take advantage of.
This is one of the reasons I'm bullish on Roblox's growth prospects. There is a lot of potential for the business, especially as it grows its audience of older users (that have income to spend).
The problem today is that it may be a long, bumpy path until Roblox becomes a formidable investment. At a time when there are many tech stocks generating fantastic top- and bottom-line growth, Roblox is only doing well on the top line. Its revenue for the first three months of 2024 totaled $801.3 million and was up 22% year over year. Unfortunately, its net loss totaled $270.6 million and was slightly worse than the $268.3 million loss Roblox posted in the prior-year period.
While there are opportunities for the business to grow, the big challenge is proving to investors that Roblox can do so while also being profitable. It's not there yet, which is why the stock has been struggling. Roblox has bounced back from its 52-week low in recent weeks but it's still down around 21% for the year. It's a stock you'll have to be patient with if you decide to invest in it, but it does possess some attractive potential and it could make for an excellent growth stock to buy for the long haul.
NYSE: PATH
Key Data Points
3. UiPath
Automation company UiPath has been on the worst path this year of all the stocks on this list, diving by more than 50% in value. In May, the company's CEO resigned, and that's when the wheels really started to come off for the stock. At the time, shares of UiPath were down more than 20%, but they crashed even further after the company announced some surprising news on guidance.
The company's latest guidance was a bit underwhelming. For its current fiscal year, which ends in January, management expects revenue to come in between $1.405 billion and $1.41 billion. Even at the top end of that guidance, that forecast would imply relatively modest revenue growth of less than 8%.
It's especially underwhelming given the company remains unprofitable and investors may have been looking for stronger results given the excitement surrounding artificial intelligence and automation. UiPath's software helps businesses automate tasks, but with so many competing services out there to choose from, it hasn't resulted in significant revenue growth for the business. In fact, the growth rate has been slowing; a year ago, UiPath's top line was expanding at a rate of 18%.
UiPath stock is trading near its 52-week low, but it's not a surefire buy by any means. The company still has to prove that it can achieve profitability and that its platform is a better option than the growing number of competing automation services out in the market. Until it can accomplish both of those things, I'd avoid the stock as there could still be more of a decline to come for UiPath.
