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Cathie Wood went shopping on Friday. The co-founder, CEO, and stock-picking mastermind of Ark Invest hasn’t been an active buyer for her funds in recent weeks, but she made several additions to existing positions as the trading week came to a close.
Roku (ROKU -2.94%), Block (SQ -3.31%), and Zoom Video (ZM -1.10%) are three of the more interesting stocks that Wood bought on Friday. They’re already popular positions across Ark Invest’s family of exchange-traded funds. Let’s take a closer look inside her shopping bag.
Image source: Getty Images.
Roku is the undisputed top dog among streaming operating systems. It commands nearly double the market share of its closest rival. Unfortunately for shareholders, it’s not the top dog in Wall Street’s eyes as an investment. The stock is down 91% since hitting an all-time high 17 months ago.
Roku’s popularity continues to improve. Its audience of active viewers has grown by 14% over the past year to reach 63.1 million. Average revenue per user is also moving in the right direction. A year ago, the fear was that the post-pandemic opening of the economy would drive families away from their living room TVs, but that has not been the case. Total streaming is growing even faster than its audience count. Put another way, we’re spending more time, on average, streaming through Roku.
Not everything is rosy at Roku, though. There’s a reason the stock has come under brutal selling pressure over the past year and change. Profits have turned to losses. The guidance it offered in last month’s report was also highly disappointing, calling for a mere 3% increase in revenue and an 8% sequential decline. The silver lining is that the sell-off finds Roku trading at a historic low top-line multiple. Roku’s enterprise value is just 1.6 times its trailing revenue.
Roku isn’t the only stock on Wood’s shopping list that has fallen sharply since hitting all-time highs last year. Block, the company formerly known as Square, is down 78% from last year’s summertime peak. The shares got a boost last month, after the company posted better-than-expected quarterly results, but the stock would still have to pop nearly fivefold to score a new high-water mark.
Block’s business includes the fast-growing CashApp payments application, its original Square ecosystem that helps merchants of all sizes process credit card transactions, a pair of crypto platforms, and even a content-streaming hub. The market has been hard on fintech stocks, and Block hasn’t been immune to the sell-off. The sharp drop in Bitcoin (BTC 0.59%) has added insult to injury, especially on the top line, where cryptocurrency transactions are reported as revenue.
Block prefers to gauge its success based on the growth in gross profit, and it’s holding up well on that front. Gross profit rose 38% in its latest quarter, as a 51% surge for CashPass was held back by a 29% increase at Square. CashApp’s success is making the flywheel spin. There are now 18 million active CashApp users — more than a third of its total active base — that have the CashApp card.
If your Zoom room is getting a little dusty, you’re not alone. The videoconferencing platform catapulted to stardom during the early days of the pandemic. The buzz isn’t the same now that we’re back at work, in the classroom, and at social gatherings.
That doesn’t mean companies no longer have to pay Zoom, though. Hybrid workspaces still need connectivity, and Zoom is trying its best to extend its initial 15 minutes of fame.
Revenue has decelerated for seven consecutive quarters, and there’s been a fierce slamming of the brakes. The streak started at 369% year-over-year growth, and we’re down to a 5% increase in last month’s fiscal third quarter. Zoom is finding ways to make up for the departure of casual users and online classrooms, continuing to score with businesses hoping to keep employees engaged when they’re not all available to meet in the office. Enterprise revenue now accounts for 56% of the total top-line results, and that business negated declines elsewhere with its 20% year-over-year ascent in Zoom’s latest quarter. The number of customers spending more than $100,000 on Zoom over the past 12 months is up 31% over the past year.
Zoom is still highly profitable. Margins may get tested as its business model shifts and as it comes up with new ways to cash in on its growing enterprise customers, but it’s still cheap. Zoom is fetching less than 20 times next fiscal year’s earnings. If Zoom can put an end to the streak of decelerating revenue growth, this could be a value and growth stock at the same time.
Roku, Block, and Zoom are all trading well below their highs, but they’re all still compelling growth stocks at attractive price points. Wood apparently believes in them right now.
Rick Munarriz has positions in Bitcoin and Roku. The Motley Fool has positions in and recommends Bitcoin, Block, Roku, and Zoom Video Communications. The Motley Fool has a disclosure policy.
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