Cathie Wood kicked off the new trading week on a buying spree. The CEO and co-founder of ARK Invest was busy buying stocks on Monday, picking up the pace after laying low on a lot of market days over the past month.
What was she buying this time? Wood added to her existing exchange-traded fund stakes in Twilio (TWLO 4.49%), Roku (ROKU 2.85%)and adze (TSLA -0.41%) on Monday. Let’s see what she might be seeing in these former market darlings that have fallen on hard times.
Your smartphone is everything these days, and Twilio is a big reason why a simple consumer electronics device is indispensable. The company is the leading provider of in-app communication solutions behind many of the most popular and functional mobile applications.
Twilio has plummeted 78% from the all-time high it hit early last year. The negative chart action doesn’t mean that growth has left the building here. Twilio’s revenue rose a better-than-expected 48% in its latest quarter. Organic revenue climbed just 35%, but it still topped market forecasts. The app kingmaker also impressed Wall Street by breaking even. This is the second time in the last three quarters that Twilio doesn’t deliver the expected red ink on the bottom line.
It wasn’t a perfect report. Its dollar-based net expansion rate is decelerating, going from 133% a year ago to 127% today. Put another way, year-over-year revenue growth from existing customers is slowing. Guidance was also not as impressive as the quarterly beat. But it’s still a leader in an expanding niche. Twilio’s on sale, and Wood seems to agree.
As far down as Twilio has fallen, it DOE get worse. Roku closed on Monday at a whopping 82% below last year’s peak. The leading operating system for smart TVs is still drawing a crowd. There were 61.3 million active accounts, up 14% over the past year. Revenue is growing even faster, as average revenue per user is up hearty 34%.
There are thousands of streaming services available on Roku’s platform, and many of them will pay to stand out. Marketers also know that Roku’s captive audience (with the average account streaming almost four hours a day) is a demographics group worth reaching.
Hardware sales have slumped at Roku, largely due to supply chain constraints. However, with so many smart TVs coming with Roku’s operating system as the factory installed option, it’s not as if dongles are the only way for Roku to get into your home. It has become a platform company, as the ad revenue it collects has become its biggest contributor to the top line.
Roku consumers aren’t straying from their streaming habits. It just delivered a record quarter in terms of streaming hours, and that metric matches the 14% user-base increase. In other words, we’re still streaming as much as we were a year ago, when there were fewer things to do outside of the home. You have to like Roku’s future, and its current bottom-line challenges should improve once the supply chain issue is fixed and Roku’s investments in content start to deliver.
Tesla has consistently been Wood’s largest holding company over the past year and change. It helps that the stock moved up in 2021, a year in which many of her other large positions retreated. ARK even routinely sold shares of the electric vehicle (EV) maker, using the proceeds to water her weeds. Now that Tesla has also temporarily fallen out of favor – not as badly as Twilio and Roku, but still down 43% from its high – she’s a buyer again.
Tesla is still dominant in the EV market, despite most major car manufacturers now aiming at that market. There was also some rumbling last week about Elon Musk sending out an e-mail warning of a 10% reduction in salaried workforce. He cleared things up over the weekend.
Total headcount will increase, but salaried should be fairly flat
– Elon Musk (@elonmusk) June 4, 2022
In short, Tesla doesn’t seem to be shifting into reverse. It’s resetting its workforce. Perhaps it’s purging either categories where it hired too many people, or workers who have been hesitant to return to the office, as he recently ordered. Either way, Tesla has the right product for the times with gas prices out of control and rivals unlikely to catch up to its proprietary Supercharger network of charging stations.
Twilio, Roku, and Tesla have seen better days, with their stocks 43% to 82% below their highs. Yet they continue to be strong growth stocks, delivering healthy year-over-year growth right now. Cathie Wood could be on to something here.