ARK Invest is hoping that 2022 is more like 2020 and less like last year. Cathie Wood — the CEO, chief investment officer, and founder of ARK Invest — became a rock star among growth stocks with monster returns two years ago. But the ARK Invest family of exchange-traded funds (ETFs) lost sorely to the market in 2021.
A neat 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? Is she trying to take advantage of last year’s decline in many of her disruptive growth stocks to build up larger positions?
DraftKings (NASDAQ:DKNG), Coinbase Global (NASDAQ:COIN), and Robinhood Markets (NASDAQ:HOOD) are trading 65%, 45%, and 81% below last year’s all-time highs, respectively. ARK Invest added to all three positions on Wednesday. Let’s see why Wood likes these three former darlings now.
Shares of DraftKings more than quadrupled in 2020. The pandemic initially hit the gambling industry hard, but once sports leagues began restarting their seasons, DraftKings became a smart way to play the surge in popularity for fantasy sports as well as traditional sportsbook wagering.
Growth is slowing at DraftKings, but it’s all relative. The 60% year-over-year growth it posted in its latest quarter was its weakest top-line growth in more than a year, but it is stacked on top of a 98% surge for the same third quarter a year earlier. DraftKings has succeeded in striking deals with leagues, networks, and individual teams to increase its exposure, and it’s paying off. It’s attracting a monthly average of 1.3 million unique paying customers, 31% more than it was serving a year ago.
Decelerating growth will continue, but it’s all relative. Analysts see DraftKings growing its business 49% in 2022, and that obviously isn’t too shabby. With the stock trading for a little more than a third of where it was when it 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 even publicly traded a year ago, and now it has become ARK Invest’s third-largest investment across all of its ETFs. Coinbase is the leading cryptocurrency exchange, and how well it’s doing depends largely on where you draw the starting line.
Revenue over the past year has been phenomenal. Coinbase posted a 330% year-over-year burst on the top line for its latest quarter, and net income soared fivefold. It’s a different story if you go quarter over quarter: The $1.2 billion it generated in revenue for the third quarter was well below the $2 billion it delivered in its record second-quarter performance. Monthly transacting users slipped 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 obviously Coinbase will be at its best when the market is ascending and trading activity is following suit. The company is very profitable, and the high-margin business is trading for less than 18 times trailing earnings. The problem is that last year’s profit was inflated by positive one-time items and its monster showing in the second quarter. The crypto exchange is trading at 34 times forward earnings. Coinbase is still a leader in an emerging industry. It deserves a market premium.
Lastly, we get to Robinhood Markets, the hardest hit of the three stocks. The online trading platform for options, crypto, and stocks hit the market at $38 over the summer. It would go on to trade as high as $85, but has now plummeted to the mid-teens. How did one of last year’s hottest initial public offerings become a broken one now trading for less than half of its debut price?
Robinhood has struggled to keep traders around. Posting losses than were much larger than expected in its first two quarters as a public company hasn’t helped. And the fact that it closed out its latest quarter with fewer funded trading accounts than it had three months earlier isn’t a surprise given that options and crypto — not stocks — remain its largest revenue makers. However, unlike the very profitable Coinbase, Robinhood’s deficits are widening.
Robinhood’s crypto game remains limited. It offers only seven digital currencies, and traders can’t spend their crypto or move their tokens and coins to different platforms. A crypto wallet is coming to Robinhood to help make its offering more useful, but investors are voting with their feet for now. This is the most challenging of the three stocks, but since it’s now trading for less than half of its IPO price, one would think that Wood believes the wave of selling is overdone.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.