It’s fair to say that Cathie Wood doesn’t mind when it rains. The Ark Invest co-founder, CEO, and investor isn’t afraid to add to some of her positions when they dip, and she did that a bit of that on Friday.
Wood spent the final trading day of last week actively buying stocks moving lower on a down day for the overall market. She added to her stakes in Roku (NASDAQ: ROKU), Unity Software (NYSE: U), and SoFi Technologies (NASDAQ: SOFI), three stocks that all fell harder than the market. Let’s take a closer look at these three purchases.
1. Roku
One of Wall Street’s biggest sinkers on Friday was Roku. Shares of the company behind the original smart TV operating system plummeted 24% after a sequential dip in average revenue per user. Wood was actively buying more shares of Roku in three of her funds.
Roku’s report was solid on the surface. Revenue growth of 14% exceeded analyst targets as well as its own guidance. Its top-line outlook for the current quarter also compares favorably with Wall Street projections. However, Roku put a damper on the potential bull parade by painting a cloudy picture on the uneven ad recovery. For a business model that relies almost entirely on the connected TV ad market to drive its bottom-line results, that’s a problem.
The popularity of Roku, however, isn’t in question. It remains the leading operating system for smart TV connections across North America. It posted double-digit growth in accounts over the past year, and engagement is getting stronger. The average account holder is now spending more than four hours a day streaming on the platform. Given all that, you’d think average revenue per user whould be heading higher, but it’s not.
Roku points out that media and entertainment promotional spending activity is trending lower. With thousands of apps on Roku, that spending activity is a key part of driving average revenue per user higher. The streaming services stock more than doubled last year, but it’s now down by more than a third since hitting a 52-week high in December. Yet Roku remains the fourth largest holding across all Ark Invest portfolios.
2. Unity Software
Unity is also failing to stick with investors this year. Shares of the game engine developer are down 17% year to date. It’s going through some shrinking, announcing last month that it would lay off about 25% of its workforce.
Unity has been posting larger-than-expected quarterly losses over the past year, and there could be more of the same when it reports again next week. Wall Street pros see a widening deficit despite a 25% year-over-year revenue increase. Profitability challenges are keeping the stock in check, and Unity’s CEO stepped down four months ago.
A platform facing problematic losses can often boost fees to improve its margin, but that didn’t work so well for Unity last year. It introduced a new fee for developers last summer, but it had to reverse the move after facing a customer outcry. Maybe a new CEO isn’t such a bad idea.
3. SoFi Technologies
Shares of SoFi are down 16% so far this year, and that’s even with a 20% surge the day the company posted blowout financial results three weeks ago. The fintech provider has delivered 11 consecutive quarters of positive adjusted earnings, but last month it finally posted it first reported net income.
There are now 7.5 million accounts, a 44% increase over the past year. SoFi is eyeing 20% to 25% compound annual revenue growth through the next three years. Revenue should decelerate this year, but if it can build on its newfound profitable turn, it may wind up on more investor radars.
Should you invest $1,000 in Roku right now?
Before you buy stock in Roku, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Roku wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of February 12, 2024
Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku and Unity Software. The Motley Fool has a disclosure policy.
Cathie Wood Goes Bargain Hunting: 3 Stocks She Just Bought was originally published by The Motley Fool