Ark Invest CEO Cathie Wood has grown in popularity over the last year, and for good reason. Wall Street investors have seen Ark Invest ETFs gain significant momentum since the pandemic-induced sell-off decimated equity markets in early 2020.
For example, Ark Innovation ETF is up 134% in the last 12 months and is up a stellar 581% since May 2016. Given these market-thumping returns, investors are closely following what Ark Invest is buying.
We look at two such stocks Cathie Wood is bullish on right now.
Canada’s largest company in terms of market cap, Shopify (TSX:SHOP)(NYSE:SHOP) is part of the Ark Invest portfolio. Shopify recently reported its first-quarter 2021 results and crushed Wall Street estimates.
The company ended Q1 with 1.7 million merchants on its platform, allowing Shopify to grow sales by 110% year over year to US$988.6 million. Comparatively, its net income surged 11 times to US$254 million, indicating a net margin of a healthy of over 25%. Its gross merchandise volume or GMV, which is the total amount spent on the Shopify platform rose 114% to US$37.3 billion.
Shopify operates via an asset-light model, which has increased its profit margins at a higher rate compared to top-line growth. This meant Shopify’s debt stands at just US$909 million, while its cash balance is close to US$8 billion.
One of the major reasons for the increase in Shopify’s merchant base is its ability to integrate third-party applications on its platform. These applications include order fulfillment as well as multiple upsell features that it sells via subscription solutions. Shopify also facilitated around US$308 million in loans to merchants which were up over 100% year over year.
The COVID-19 pandemic accelerated the trend towards online shopping, which will benefit Shopify in 2021 and beyond. Shopify stock has returned 93% in the last year and a staggering 4,500% since its IPO back in May 2015. Despite its sky-high valuation, Shopify stock is a top bet for your growth portfolio.
Streaming company Roku (NASDAQ:ROKU) is another stock part of the Ark Invest portfolio. The company has grown its sales from US$512.8 million in 2017 to US$1.8 billion in 2020, indicating a compound annual growth rate of 51%. Comparatively, its free cash flow has risen from US$28.1 million to US$65.8 million in this period.
Similar to Shopify, the pandemic acted as a tailwind for streaming companies such as Roku as well. In the U.S., the number of streaming hours on Roku devices was up 55% year over year in Q4. Further, around 43% of broadband households in the U.S. that pay for cable TV may cut the cord and switch to streaming services over the next year, according to a report from Park Associates.
Roku is now expanding into international markets including Canada, Brazil, Mexico, and the U.K., which will drive top-line growth in the upcoming decade. It’s already the leading smart TV operating system in Canada and the U.S.
Analysts tracking Roku stock expects its sales to rise by 44.2% to $2.57 billion in 2021 and by 38% to $3.54 billion in 2022. While still unprofitable, Wall Street expects Roku to post earnings per share of $0.54 in 2022.
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David Gardner owns shares of Roku. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Roku, Shopify, and Shopify. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.
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