Nowadays, many people turn to Cathie Wood, Founder and CEO of ARK Invest, for information on stocks. Her company’s technology-driven exchange traded funds (ETFs) have yielded impressive results, and retail investors are eager to follow where she leads.
So we asked three Motley Fool contributors to look at some of ARK Invest’s holdings and pick out a few top tech stocks from among them that they thought would be great buy and hold investments now. Their choices: Twilio (NYSE: TWLO), Shopify (NYSE: SHOP), and Roku (NASDAQ: ROKU).
This customer engagement platform is just getting started
Brian Withers (Twilio): Twilio is one of the top 10 holdings of Cathie Wood’s ARK funds. In total, ARK Invest holds more than 2% of the company and its shares occupy leading positions in three of its funds, the most important of which, the ARK Innovation ETF. This tech stock seems to be one of his favorites, as it has steadily increased the number of stocks held over the past year. Let’s take a look at why you might want to grab a few stocks and hold onto them for the next decade.
Twilio is a developer-centric platform that empowers software engineers to integrate automated communication and messaging tools into existing platforms. This has a number of advantages. It gives businesses the ability to upgrade their customer engagement efforts with text messages, voice calls, video chats, and more. without overhauling their existing infrastructure. It allows software developers to test and learn on a small scale to understand the capabilities of the platform and see what types of messaging work best before deploying these communication tools to more customers. And while these easy-to-use messaging APIs (application programming interfaces) were already powerful, the company recently made an acquisition that will make them even smarter.
In October, Twilio announced the acquisition of Segment.io, which operates the leading customer data platform. This platform brings together all of a customer’s business customer data flows into a consolidated view. By giving them a 360-degree perspective of their customers’ digital journeys, Segment.io gives corporate customers a more detailed view of their customers and allows the messages sent to them to be more targeted and better personalized.
This acquisition got off to a good start. Last quarter, Segment contributed $ 45 million in revenue to Twilio’s revenue. In addition, its founder and CEO, Peter Reinhardt, has been chosen to lead one of Twilio’s three research and development units. Reinhardt will focus on the global data platform, including Segment, and Sendgrid’s email and marketing campaigns.
The integration of Segment has only just begun. As Twilio discovers how to unlock the potential of the customer data platform to enable smarter, more targeted messaging, it will be a powerful tool for its customers. Even more exciting for investors, the company forecasts 30% annualized organic growth over the next four years, not including the impact of the Segment acquisition. It seems like the perfect time to grab a few shares of this leading timber stockpile for holding until 2030 or beyond.
A pioneer in enabling retailers to go online
Danny Vena (Shopify): There’s no denying that Shopify is one of Cathie Wood’s favorite stocks. The e-commerce giant is a fixture in three of ARK Invest’s six flagship ETFs. This is the second largest participation in both the Next Generation ARK Internet and the ARK Fintech Innovation ETF, and the 6th asset in the ARK Innovation ETF. The three funds combined hold more than 1.1 million shares of Shopify, valued at more than $ 1.6 billion.
It’s easy to see why Wood is sold so entirely on Shopify. It provides the world’s largest platform designed to help merchants build and manage ecommerce sites. Its comprehensive set of templates and tools make it a snap for small and medium-sized businesses to offer their goods and services online, but that’s just the start.
Once a customer’s ecommerce site is up and running, Shopify offers a host of solutions to help manage day-to-day business tasks, including payment processing, advertising, fulfillment and shipping, and handling. Sales Analysis. It also simplifies the complexity of integrating a growing list of merchant sales channels, including social media apps, e-commerce sites, and physical stores. And it offers a more robust set of solutions for merchants at the enterprise level.
While it’s easy to assume that most of Shopify’s growth is already in the rearview mirror, nothing could be further from the truth. In fact, Shopify’s merchant count has grown to 1.7 million, down from just 1 million two years ago.
After a 2020 blockbuster, Shopify has started 2021 on a high note. In the first quarter, total revenue increased 110% year-over-year to $ 989 million. This was an acceleration from the 94% growth rate in the fourth quarter of 2020. At the same time, adjusted net income increased more than 11 times to $ 254 million.
Shopify is riding the wave of ecommerce adoption, and this trend is expected to continue. Globally, online retail sales are expected to reach about $ 6.39 trillion by 2024, up from $ 3.35 trillion in 2019, according to a forecast from eMarketer. Not only that, but ecommerce is expected to account for 22% of total retail sales by 2024, up from just 14% in 2019. Shopify is well positioned to reap the rewards of this important and growing opportunity.
The company generated more than $ 2.9 billion in revenue in 2020, which is a drop in the bucket compared to a total addressable market that management estimates at $ 153 billion.
Considering Shopify’s leadership position in the industry, solid execution, and significant age-old tailwinds propelling its growth, it’s not hard to see why this title is a Wood favorite. Just buy Shopify and reserve it for the next decade. You will be glad you did.
You can bet on this entertainment change
Chris Neiger (Roku): You’ve probably already noticed the evolution of the entertainment industry from traditional pay TV providers to streaming services. An estimated 6.6 million people cut the cord on cable and satellite TV services in 2020, and forecasters predict that by 2024, more than a third of U.S. households will have done the same.
Cathie Wood has also noticed the change, which is why she owns Roku shares in her Ark Next Generation Internet ETF and her Ark Innovation ETF.
Roku has built one of the most popular video streaming platforms in the United States and Canada. It had 53.6 million users at the end of the first quarter, in which time users streamed more than 18 billion hours of content on its platform. So Roku’s streaming platform is popular – but how exactly is it benefiting from this development in the entertainment world?
First, whenever a viewer signs up for a paid service through Roku’s platform, either Disney+, Hulu, HBO Max or whatever – the company gets a reduction in the subscription fee. In addition, the company sells advertisements that are served on its platform. Between these two revenue streams, Roku’s platform revenue is growing at a rapid rate – it grew 101% year-over-year in the last quarter. This is great news considering that the platform’s revenue represents 81% of the company’s total sales.
And not only is Roku’s user base growing and driving more sales for the company, but the amount the company earns from each of its users continues to increase. The average revenue per user (ARPU) in the first quarter was $ 32.14, up 32% year on year.
The point is, Roku is profiting from the growth of new video subscription services, and there is no indication that this trend is slowing down. Consider that the average American household now pays for four video streaming services.
With Roku’s platform already the best dog in Canada and the United States, ad spending on streaming platforms on the rise, and a continual shift in audiences to video streaming services, it is not. surprising that Wood owns Roku shares in two of his funds. Retail investors should also add some to their portfolio.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.