In this article, we discuss the 5 best ARK stocks to buy now. If you want to read our detailed review of Cathie Wood’s stock picks and hedge fund performance, go directly to 12 Best ARK Stocks To Buy Now.
5. Roku, Inc. (NASDAQ:ROKU)
ARK Investment Management’s 13 Portfolio: 4.32%
ARK Investment Management’s Stake Value: $1.03 billion
Number of Hedge Fund Holders: 34
Up next in the portfolio of Cathie Wood is Roku, Inc. (NASDAQ:ROKU). The California-based company provides smart TV software which allows users to access multiple content sources within a single platform. ARK Investment Management, according to its Q1 portfolio, held 8.27 million Roku shares valued at $1.03 billion, making it the most prominent shareholder of the firm. In total, 34 hedge funds were long Roku, Inc. (NASDAQ:ROKU) at the end of March, down from 43 a quarter ago.
On April 28, Roku, Inc. (NASDAQ:ROKU) reported its Q1 earnings and posted an EPS of -$0.19, above analysts’ estimates by $0.02. The company pulled in $733.7 million in revenue for the quarter, which exceeded market forecasts by $15.1 million and also signalled year-on-year growth of 27.8%.
Citi analyst Jason Bazinet on May 3 maintained a ‘Buy’ rating on Roku, Inc. (NASDAQ:ROKU) shares and slashed the price target to $175 from $225. He sees the market as less bullish on streaming companies after Netflix reported subscriber loss for the first time in a decade, but thinks Roku, Inc. (NASDAQ:ROKU) is well-positioned to benefit from the secular trend of ad money moving from linear to connected TVs.
Here is what investment firm RGA Investment Advisors had to say about Roku, Inc. (NASDAQ:ROKU) in its Q4 2021 investor letter:
“Since we bought Roku, no stock has contributed more to our returns and no stock has been more volatile in our portfolio. This is now our third drawdown in the stock of over 30% and our second of over 60%. Fortunately (or tactically) before the two 60% drawdowns we had trimmed our positions by at least a third, though unfortunately that meant we still held large slices of the stock on the way down. Despite the stock having soared too far, too fast and thinking it was due for a period of digestion, we believe over our timeframe even the former highs will be rewarded with a good result. We have often pointed out that volatility in companies like Roku is the market’s way of grappling with a really wide range of potential outcomes and that remains as true today as ever, though the range of outcomes continues to narrow for the better for Roku.
Roku today is trading at lower multiples than at any point as a public company, meanwhile its revenue and margin composition has evolved from majority hardware to vast majority platform– in other words, each $1 of revenue is much more valuable today than ever before for Roku. Roku today is a profitable company for the first time in its history. Roku today has a multitude of investment opportunities within its own platform that can drive considerable value. Early in 2021 at higher prices, one had to believe the company would grow accounts internationally to justify valuations. This was so, because the company has so quickly achieved substantial penetration of the US market with 56.4m reported household customers of the ~130m total US households, that further growth in the US household count will be challenging and because prices were so high. Today, one merely needs to believe that with around 60 million households (the expectation for the yet reported year-end 2021 number), ARPU has a strong enough growth tailwind to reach $100 within a reasonable time, without relying on any incremental account growth. For context, as of Q3 this year, ARPU was $40, up 49% year-over-year and we know it will be higher in Q4. Growth in ARPU is underpinned by the continuing migration of viewer hours to CTV. The subforces behind this are increasing the penetration of Roku devices within households (go from one Roku to TV to 2-4), increasing the hours that each house watches (getting from shy of 4 hours to the nearly 8 hours an average American household watches TV) and broadening the content on the platform, increasing the share of inventory with content companies and more hours (like live sports viewing) shifting from linear to CTV. We further believe the opportunity to become the bundler and/or hub of household content subscriptions is growing, as evidenced by the rise in credit card pings per user from 1 to 1.3 per month and its continuing ascension. In this respect, Roku has the right to win with their installed base, because the experience is exponentially better than legacy and competing offerings…” (Click here to see the full text)
