Some investors may be checking out heading into the holiday weekend, but that's not Cathie Wood's style. The founder and CEO of Ark Invest and stock picker for its growth-geared exchange-traded funds always keeps busy. She announces her trades at the end of every market day. And she bought a couple of stocks on Thursday.
Ark added to its existing positions in Baidu (BIDU -0.32%) and Nextdoor (KIND 1.03%) on Thursday. It's a contrarian move on both fronts, as the stocks are down 20% to 42% over the past year. Let's take a closer look at Wood's latest purchases.
1. Baidu
China's leading search engine is still searching for a growth engine. Shares of Baidu have declined 6% in the two trading days since the company posted fresh financials on Wednesday morning. Revenue rose 3% to the U.S. equivalent of nearly $4.5 billion. It may not seem like much, but it's actually Baidu's strongest top-line showing in more than a year.
Baidu isn't the rock star it was when it went public 20 years ago as an ascending giant in search and online advertising in China. Annual revenue has clocked in with double-digit growth just once in the last six years. Half of those years have treated shareholders to top-line declines.
The quarter only gets worse if you work your way down the income statement. Adjusted earnings declined 8% to $891 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) slipped 6% to $925 million. On the bright side, the bottom line was comfortably ahead of Wall Street expectations for the first quarter.
Image source: Getty Images.
Baidu's stock chart reflects its failure to launch as a growth stock in recent years. The shares are trading 20% lower over the past year, off by nearly a third over the past three years. Wood seems to think that now is a good time to add to her stake following this week's post-earnings pullback. I would have to agree.
Baidu is sheltered to a certain extent from the trade war fallout, as it generates the lion's share of its revenue in China. There are also some promising pockets of growth in its business. The unimpressive 3% overall increase in revenue was held back by a 9% decline for its iQIYI streaming video platform. Back that out, and core Baidu revenue rose a more encouraging 7%.
It gets better. Core revenue was held back by a 6% dip in ad revenue, a segment that accounts for roughly half of Baidu's overall results. This leaves it with a 40% increase for its business outside of online marketing and streaming video -- fueled largely by AI Cloud. Baidu's been an early player in AI and related emerging technologies. It has more than 5,700 AI-related patent applications, more than any other Chinese company. Its AI Cloud suite of services and solutions experienced a 42% surge in year-over-year revenue in the quarter. It's starting to move the needle, and it's a big reason why analysts see revenue growth accelerating from here.
2. Nextdoor
The good news when it comes to Nextdoor is that the hyperlocal online discussion board has $418 million in cash and no long-term debt on its balance sheet. This is a whopping 75% of its current market cap of $559 million. Investors are getting the popular platform with 46 million weekly active users practically for free.
The bad news is that Nextdoor is still losing money. Despite tossing a wide net by covering 340,000 different neighborhood communities, this has been a tough crowd to monetize. Most publicly traded forums are feasting profitably from user-generated content, but Nextdoor isn't one of them. Wall Street pros don't see Nextdoor generating positive net income for at least a couple of years. Adding insult to injury, after the company posted respectable double-digit revenue growth in four of the last five years, investors are bracing for flat growth in 2025.
Time is on Nextdoor's side given its flush liquidity and narrowing losses, but investors trying to call bottom have been burned before. The shares have tumbled 80% since hitting the market as a special purpose acquisition company (SPAC) four years ago. Wood is a believer. She has now added to her existing position in each of the last eight trading days. As one of the smallest companies across her Ark Invest funds, it makes sense that she would be building up a position gradually. Trading slowly will be an even bigger requirement if she wants to lighten her load on Nextdoor.
