ARK Invest hopes 2022 will be closer to 2020 and less like last year. Cathy Wood – CEO, Chief Investment Officer and founder of ARK Invest – became a rock star among the high-returning growth stocks two years ago. But the ARK Invest family of exchange-traded funds (ETFs) lost out hard in the market in 2021.
The great thing about ARK Invest is that it publishes its buys and sells daily a few hours after the market closes. What is wood buying these days? Are you trying to capitalize on last year’s slump in several turbulent growth stocks to build bigger positions?
kings (NASDAQ: DKNG)And Coinbase Global (NASDAQ: currency), And Robinhood Markets (NASDAQ: HOOD) They are trading 65%, 45% and 81% below their highs from last year, respectively. ARK Invest was added to all three positions on Wednesday. Let’s see why Wood loves these three ex-boyfriends now.
DraftKings shares more than quadrupled in 2020. The pandemic initially hit the gambling industry hard, but once sports leagues started re-seasons, DraftKings became a smart way to play the surge in popularity of fantasy sports as well as betting over traditional sports betting.
Growth is slowing at DraftKings, but everything is relative. The 60% annual growth it posted in the fourth quarter was the weakest top-line growth in more than a year, but it’s stacked on top of a 98% increase in the same third quarter a year earlier. DraftKings has successfully struck deals with leagues, networks and individual teams to increase its exposure, and it is paying off. It attracts an average monthly of 1.3 million unique paying customers, 31% more than it served a year ago.
Growth will continue to slow, but it is all relative. Analysts see DraftKings grow its business by 49% in 2022, and that’s clearly not too bad. With stocks trading for just over a third of what they were when they peaked 10 months ago, it’s hard to blame Wood for making a bigger bet on DraftKings.
A fun fact about Coinbase is that it wasn’t publicly traded a year ago, and now it’s ARK Invest’s third largest investment across all of its ETFs. Coinbase is the leading cryptocurrency trading platform, and how well it performs largely depends on where you draw the starting line.
Revenues over the past year have been phenomenal. Coinbase posted a 330% year-over-year increase in the top row for the last quarter, with net income up fivefold. It’s a different story if you go quarter by quarter: Its $1.2 billion in revenue for the third quarter was significantly less than the $2 billion it generated in the record-breaking performance for the second quarter. Monthly users fell from an average of 8.8 million in the quarter ending in June to 7.4 million three months later.
Crypto has gone mainstream, but Coinbase will obviously be at its best when the market is bullish and trading activity follows suit. The company is very profitable, and the high-margin business is trading at less than 18 times the subsequent earnings. The problem is that last year’s earnings were inflated by the positive one-off items and their huge debut in the second quarter. Crypto exchange is trading with forward profit 34 times. Coinbase is still a leader in an emerging industry. It deserves a market premium.
Finally, we come to Robinhood Markets, the hardest-hit of the three stocks. The online trading platform for options, cryptocurrencies, and stocks hit the market at $38 over the summer. It will continue to trade as high as $85, but has now fallen into its mid-teens. How did one of the hottest initial public offerings of the past year become a broken offering that is now trading for less than half its initial price?
Robinhood struggled to keep traders around. Losses were much larger than expected in its first two quarters because a public company didn’t help. And the fact that it closed its last quarter with fewer funded trading accounts than it did three months ago is no surprise given that options and cryptocurrencies — not stocks — remain the biggest revenue makers. However, unlike the highly profitable Coinbase, Robinhood’s deficit is widening.
Robinhood crypto game is still limited. It only offers seven digital currencies, and traders cannot spend their cryptocurrency or transfer their tokens and coins to different platforms. Cryptocurrency wallet is coming to Robinhood to help make its offering more useful, but investors are voting with their feet for now. This is the biggest challenge of the three stocks, but since they are now trading at less than half their initial public offering price, one might think that Wood thinks the sell-off is overblown.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.