Cathie Wood, CEO of ARK Invest, is known for embracing the latest technologies in her firm’s exchange-traded funds. And as anyone who follows the stock market closely can tell you, many high-growth technology stocks have been beaten down in recent months.
However, Wood hasn’t stopped buying, and clearly sees long-term opportunities in this market environment. Here are two recent Cathie Wood buys that are down by 80% or more from their highs, and that have massive market opportunities that could deliver home-run returns for patient investors over time.
Streaming headwinds have made this stock even cheaper
Here’s how poorly both of the stocks in this article have performed. Roku ( ROKU -2.47% ) has declined by 80% from its 52-week high and is the better performer of the two. And Wood has been adding shares to Ark’s funds in recent weeks as the stock’s slump has intensified.
To be fair, there are some valid reasons shares have been under pressure. For one thing, supply chain issues are affecting Roku’s ability to make its hardware devices — in fact, hardware revenue in the fourth quarter declined 9% year-over-year. And while the number of active Roku user accounts has increased by nearly 9 million over the past year, the number of streaming hours hasn’t quite kept up and is likely to be under pressure as COVID-19 restrictions are relaxed compared to 2021.
Having said that, Roku still has a fantastic market opportunity, a leading market share, and excellent momentum. In fact, platform revenue (mainly ad-driven) grew by 49% year-over-year in the fourth quarter and the average Roku user is generating 43% more revenue for the company. With a $725 billion global advertising market to go after (and just 0.3% of it on the platform so far), Roku could still have plenty of growth potential as the streaming landscape continues to grow.
An outside-the-box metaverse play
It’s no secret that Cathie Wood is a believer in the potential of the metaverse. And she’s putting her money where her mouth is by adding shares of spatial data company Matterport ( MTTR -0.81% ) to the ARK Autonomous Technology & Robotics ETF ( ARKQ -2.54% ).
If you aren’t familiar, Matterport develops the technology that allows for the creation of three-dimensional “digital twins” of physical spaces. If you’ve been in the market for a home, Matterport’s technology is used by some sellers on Redfin‘s ( RDFN -4.75% ) platform and is also used to highlight vacation rental listings on Vacasa ( VCSA -6.95% ), just to name a couple consumer-facing applications. If you haven’t seen one, check it out — it is leaps and bounds beyond other “virtual tour” technologies.
Matterport makes money by selling hardware — specifically the Matterport Pro2 3D camera — but the most exciting part of the business is its subscription plans. For example, a real estate agent might subscribe to Matterport’s platform to enhance their listings. You don’t need the professional-grade camera, Matterport’s technology works on Android and iOS devices quite well. And there are potential applications in areas like construction, interior design, insurance underwriting, e-commerce, and much more. While it’s tough to quantify Matterport’s addressable market opportunity, especially since the industry is so young, management believes that it could generate billions in annual recurring (high margin) revenue if its library contained digital twins of just 1% of the buildings in the world.
Neither is a low-risk stock
Although both of these stocks are far below their highs, that doesn’t mean that I’m trying to call the bottom here. We could see more headwinds — persistent inflation, more bad news from streaming companies, etc. — that could certainly cause more pressure in the short term. And both of these companies are likely to be rather volatile for the foreseeable future as their growth stories play out. However, for risk tolerant investors who are willing to hold for five years or more, these could be big winners if they can execute.
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.