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Cathie Wood is one of the most popular investors on Wall Street. Wood is the CEO of Ark Invest which offers multiple growth-focused exchange-traded funds to investors. After delivering stellar gains in 2020, several Ark Invest ETFs are now trading in the red due to the ongoing sell-off in growth stocks.
However, Cathie Wood who is also the chief investment officer at Ark Invest recently went bottom fishing and increased exposure to companies such as Robinhood Markets (NASDAQ: HOOD), DraftKings (NASDAQ: DKNG), and Cloudflare (NYSE: NET). Let’s take a look at the fundamentals of each of these stocks.
Robinhood Markets
Robinhood has been among the worst-performing stocks on the bourses in the last year as shares of the discount broker are trading 86% below all-time highs. In Q1 of 2022, its revenue fell by 43% year over year to $299 million while its net loss stood at $392 million or $0.45 per share. In the year-ago period, the company reported a net loss of $1.4 billion.
Comparatively, analysts forecast Robinhood to report revenue of $356 million and an adjusted net loss of $0.36 per share. Robinhood attributed its disastrous results to a volatile macro-environment which has driven the equity market lower in 2022.
The performance of Robinhood is tied to the equity market. So, in a bull run Robinhood should benefit from higher trading volume while when markets turn bearish, the company will massively underperform peers.
Analysts tracking HOOD stock now expect the company’s revenue to decline by 30.6% year over year to $362 million in the June quarter. Similar to most other high-growth stocks, Robinhood is also unprofitable and is forecast to report a loss of $1.24 per share this year.
DraftKings
Valued at a market cap of $6.16 billion, DraftKings is down 79% from all-time highs. However, the sell-off offers investors an enticing opportunity for investors to buy the dip as the sports betting market doubled in size in 2021 to almost $53 billion. Several states in the U.S. have legalized sports betting in recent months and this trend is bound to gain pace going ahead.
However, as is the case with every rapidly expanding market, several companies are now eyeing this lucrative segment driving up customer acquisition costs and negatively impacting profit margins.
In fiscal 2021, DraftKings reported revenue of $1.3 billion while its marketing expenses stood at $981.5 million. In 2020, its marketing expenses were $495 million. Wall Street now expects sales to rise by 52.5% to $1.98 billion in 2022 and by 33.6% to $2.64 billion in 2023.
Comparatively, its loss per share might narrow from $3.78 in 2021 to $2.26 in 2023.
DraftKings stock is trading at a discount of 100% compared to average analyst price target estimates.
Cloudflare
A cloud platform that interconnects with 10,000 networks that include bit-ticket enterprises, cloud vendors, and internet service providers, Cloudflare is valued at $29.2 billion, by market cap. Its stock is currently trading 59% below all-time highs making it a perfect contrarian bet for Cathie Wood.
Cloudflare’s robust network infrastructure offers it a competitive advantage allowing the company to secure the applications and networks of enterprises. It faces competition from tech giants such as Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) but it has a few differentiating factors as it works on on-premise data centers and public cloud that provide clients visibility and control over their IT networks.
Cloudflare ended 2021 with more than 140,000 paying customers, an increase of 26% year over year, allowing the company to increase sales by 52% to $656 million. Its operating cash flow also stood at $65 million, compared to a loss of $17 million in the year-ago period.
Cloudflare forecasts its addressable market to expand to $86 billion in 2022 and $100 billion in 2024, providing it with enough room to improve revenue going forward.
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