In this article, we discuss 5 innovative stocks in Cathie Wood’s portfolio that failed to impress. If you want our detailed analysis of these stocks, go directly to 10 Innovative Stocks in Cathie Wood’s Portfolio That Failed to Impress.
5. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Fund Holders: 48
Decline in Share Price in the Last 6 Months: 63.21%
Zoom Video Communications, Inc. (NASDAQ:ZM) is an American communications technology firm which has declined 63.21% in the last six months. Cathie Wood increased her stake in Zoom Video Communications, Inc. (NASDAQ:ZM) by 57% in Q4 2021 despite the stock sliding significantly, holding 6.8 million shares worth $1.2 billion.
The consensus EPS estimate for Zoom Video Communications, Inc. (NASDAQ:ZM) is $1.07, down 12.3% year-over-year, and the consensus revenue estimate is $1.05 billion, gaining 19% from the prior-year quarter, as per the earnings guidance posted on February 25.
On February 24, UBS analyst Karl Keirstead lowered the price target on Zoom Video Communications, Inc. (NASDAQ:ZM) to $130 from $250 and kept a Neutral rating on the shares ahead of its quarterly results. Despite the 35% year-to-date decline in the stock, the analyst recommends remaining on the sidelines given his concerns about U.S. market saturation, competition from Microsoft Teams, and price compression.
Tiger Global Management held a prominent stake in Zoom Video Communications, Inc. (NASDAQ:ZM) as of Q4 2021, with more than 6 million shares worth $1.12 billion. Overall, 48 hedge funds were bullish on Zoom Video Communications, Inc. (NASDAQ:ZM) in the fourth quarter of 2021, down from 56 funds in the quarter prior.
Here is what Artisan Partners has to say about Zoom Video Communications, Inc. (NASDAQ:ZM) in its Q1 2021 investor letter:
“We concluded our campaigns in Zoom Video Communications. We have been paring our position in Zoom for several quarters, anticipating the reduced need for video conferencing as vaccination rates climb and people return to their workplaces. That said, we believe there is a strong case to be made that the pandemic has prompted a permanent inflection in video conferencing’s importance—sustainably higher remote work arrangements, more online learning and less business travel. Furthermore, the company’s dramatically expanded user base (up 485% YoY in Q3) positions it well to cross sell additional services, Zoom Phone in particular. The long-term future remains bright, but we decided to end our successful investment campaign in favor of opportunities in our pipeline with more attractive near-term growth prospects.”
4. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 86
Decline in Share Price in the Last 6 Months: 55.33%
Cathie Wood lowered her Shopify Inc. (NYSE:SHOP) stake by 23% in Q4 2021, and her hedge fund owned 715,230 shares of the company, worth over $985 million, representing 2.97% of the fund’s 13F portfolio. Shopify Inc. (NYSE:SHOP) is a Canadian multinational e-commerce company.
On February 16, Shopify Inc. (NYSE:SHOP)’s Q4 results were published, and the company posted earnings per share of $1.36, above consensus by $0.05. The $1.38 billion revenue jumped 41.14% year-on-year, surpassing estimates by $38.40 million.
DA Davidson analyst Tom Forte lowered the price target on Shopify Inc. (NYSE:SHOP) on February 17 to $800 from $1,400 and kept a Neutral rating on the shares as he resets his expectations for what success looks like for Shopify Inc. (NYSE:SHOP). The analyst also lowered his long-term adjusted EBITDA margin forecast to 30% from 45% on the expectation that spending for sales and marketing, R&D, and G&A will be higher than his previous forecasts, at maturity.
Among the hedge funds tracked by Insider Monkey, 86 hedge funds were bullish on Shopify Inc. (NYSE:SHOP) in Q4 2021, up from 73 funds in the preceding quarter. Stephen Mandel’s Lone Pine Capital held the biggest stake in Shopify Inc. (NYSE:SHOP), with 1.3 million shares worth $1.9 billion.
Here is what RiverPark Large Growth Fund has to say about Shopify Inc. (NYSE:SHOP) in its Q4 2021 investor letter:
“Shopify: SHOP shares were down modestly for 2H21, and we attribute the decline to the market environment rather than anything company specific, as Shopify’s fundamentals remain exceptional. The company reported $42 billion of merchandise sales, a 35% year-over-year increase, leading to 46% revenue growth to $1.1 billion for its 3Q. Subscription solutions revenue grew 37% year over year.
Last year, $120 billion (9%) of US retail e-commerce sales flowed through SHOP, which was second only to Amazon, and up from $61 billion for 2019. The company is still enjoying significant tailwinds as retail merchants of all sizes rapidly adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services at SHOP, will continue to drive revenue growth of about 50% per year over the next several years, accompanied by continued operating margin expansion.”
3. Block, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 96
Decline in Share Price in the Last 6 Months: 54.29%
Block, Inc. (NYSE:SQ) is a financial services and digital payments company based in San Francisco, California. Cathie Wood owned over 6 million Block, Inc. (NYSE:SQ) shares in Q4 2021, worth $997.70 million, representing 3.01% of her fund’s total 13F securities. Block, Inc. (NYSE:SQ) shares declined 54.29% in the last six months.
Needham analyst Mayank Tandon lowered the firm’s price target on Block to $175 from $315 to reflect lower valuations for high-growth payments stocks but kept a Buy rating on the shares after its “strong” Q4 results. The recent Afterpay acquisition should give Block, Inc. (NYSE:SQ) another lever to accelerate international expansion and integrate buy-now-pay-later products into both its Seller and Cash App ecosystems, the analyst told investors in a research note.
Among the hedge funds tracked by Insider Monkey in Q4 2021, 96 funds were bullish on Block, Inc. (NYSE:SQ), down from 98 funds in the prior quarter. Bares Capital Management is a significant stakeholder of the company, with 4.3 million shares worth $705.2 million.
Here is what RiverPark Large Growth Fund has to say about Block, Inc. (NYSE:SQ) in its Q4 2021 investor letter:
“Block (formerly Square): Block declined on mixed quarterly results, management commentary on slowing Cash App growth, and a delay in the closing of the AfterPay acquisition (Block announced the takeover of the global “buy now, pay later” platform in August). Still, SQ reported a strong quarter overall with gross profit growth at 43% year over year (due to passthrough costs, gross profit is more reflective of top-line growth), with gross profit from its Seller Ecosystem growing 48% to $606 million and from its Cash App growing 33% to $512 million. Still, some investors focused on the weaker-than-expected gross profit growth in the company’s Cash App division, creating pressure on the company’s shares. Importantly, Adjusted EBITDA beat expectations, growing 28% to $233 million.
Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers, representing half of first quarter’s gross profit). The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion for 2020, and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown from nothing in 2015 to $512 million gross profit last quarter) has a particularly large opportunity with its powerful ecosystem of digital financial services, including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app. We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while half of the company’s current profit is from its Seller Business, we believe most of Block’s future value will come from its Cash App business.”
2. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 108
Decline in Share Price in the Last 6 Months: 57.28%
Sea Limited (NYSE:SE) is a digital entertainment, e-commerce, digital payments, and financial services company. Sea Limited (NYSE:SE) shares slid 57.28% over the last six months, and Cathie Wood also trimmed her stake in the company by 32% in Q4 2021. Wood’s fund held 654,834 shares of Sea Limited (NYSE:SE), worth $146.4 million. The stock rebounded 15% on February 15 as Cathie Wood purchased shares.
On February 7, Barclays analyst Jiong Shao lowered the price target on Sea Limited (NYSE:SE) to $218 from $427 and kept an Overweight rating on the shares. The post-COVID economic reopening is having a negative impact on both the company’s gaming and e-commerce business as consumers reduce their digital presence, Shao told investors in a research note. The analyst believes Sea Limited (NYSE:SE)’s 2022 outlook may need to be reset.
According to the Q4 database of Insider Monkey, 108 hedge funds were long Sea Limited (NYSE:SE), down from 117 funds in the prior quarter. Kora Management is one of the leading shareholders of Sea Limited (NYSE:SE), with 3.4 million shares worth $779.40 million.
Here is what Hayden Capital has to say about Sea Limited (NYSE:SE) in its Q4 2021 investor letter:
“Sea Ltd represents a substantial portion of our portfolio, and this last market downturn has certainly been painful for shareholders. While I’d estimate (or rather guess?) that ~2/3rd of the stock price decline is due to concerns around the aforementioned rising rate environment hurting most long-duration growth companies, approximately ~1/3rd of the stock decline is likely due to investor’s concerns around Sea Ltd transitioning from “Act 1” to “Act 2”, which I’ll discuss in this section.
Previously, Sea has relied upon the exponential growth of its gaming business, Garena, and in particular that of the worldwide mobile game sensation, Free Fire, to provide the profits to reinvest into the Shopee ecommerce division within Southeast Asia. Between 2018 and 2021, profits from Garena grew over 10x, all of which was reinvested into building out the Shopee ecommerce platform.
This strategy has been tremendously successful, with Shopee now on track to achieve ~$100 Billion in GMV in 2022, making it one of the largest ecommerce companies in the world. More importantly, these new-to-ecommerce customers are extremely sticky (ordering more than 4x per month, logging in several times per day, and spending 30 – 60 minutes inside of the app per day).
This isn’t simply “renting customers” via deeply discounted promo codes. But rather, Shopee has trained a whole new segment of the population to shop online via their addictive & engaging platform. Nowadays, Shopee is definitively the dominant ecommerce leader in Southeast Asia (~55 – 60% market share), and the company feels that it is in a much more stable position compared to just a few years ago…” (Click here to see the full text)
1. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 110
Decline in Share Price in the Last 6 Months: 59.45%
PayPal Holdings, Inc. (NASDAQ:PYPL) is an American multinational financial technology company that facilitates online payments. Cathie Wood cut back on her PayPal Holdings, Inc. (NASDAQ:PYPL) stake in the fourth quarter of 2021, dumping 72% of the stock. She held 217,493 shares, worth $41 million in Q4.
On February 1, PayPal Holdings, Inc. (NASDAQ:PYPL)’s Q4 results were disclosed, and the company posted an EPS of $1.11, missing estimates by $0.01. Revenue over the period jumped 13.11% year-over-year to $6.92 billion, outperforming consensus by $30 million. PayPal Holdings, Inc. (NASDAQ:PYPL) stock slid 12% in after-hours trading following its Q1 guidance that trailed consensus estimates.
Bernstein analyst Harshita Rawat lowered the price target on PayPal Holdings, Inc. (NASDAQ:PYPL) on February 3 to $140 from $180 and kept a Market Perform rating on the shares. The analyst noted that PayPal Holdings, Inc. (NASDAQ:PYPL)’s Q4 was perhaps one of the most disappointing quarters he recalls for the company. The biggest negative surprise was an abrupt change in strategy to focus more on user engagement versus user growth to drive revenue growth, Rawat added.
According to the database of elite funds maintained by Insider Monkey in Q4 2021, 110 funds were bullish on PayPal Holdings, Inc. (NASDAQ:PYPL), down from 123 funds in the prior quarter. Fisher Asset Management owned the biggest stake in the company, with 14.4 million shares worth $2.72 billion.
Here is what Polen Focus Growth has to say about Paypal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2021 investor letter:
“The top absolute detractors during the fourth quarter (includes) PayPal. PayPal was the most notable underperformer during the quarter and year. PayPal’s business continues to thrive, even on difficult comparisons with 2020. As the world’s largest digital wallet and fintech company, PayPal benefits from strong secular tailwinds from e-commerce and digital payments.
The negative share price reaction stemmed from two issues in our view. First, management modestly raised its 2021 revenue and earnings guidance early in the year, only to reduce it back to its original guidance. We have noticed that PayPal has tried to give overly precise guidance in the past and has had to recalibrate.
Overall, the company is growing well within our expectations and at what we believe to be a healthy rate. In addition, headwinds from its rapidly declining processed transactions from the eBay marketplace are not material to PayPal’s long-term success, in our view…” (Click here to see the full text)
You can also take a look at Billionaire Leon Cooperman Is Buying These 10 Stocks and 10 Best Stocks to Buy According to Warren Buffett.
