The technology sector has been a little volatile since the beginning of this year, which has led some investors to look for insights into technology stocks that can go the distance in their portfolios.
Cathie Wood, the founder and CEO of ARK Invest, has been a go-to resource for many investors, so we asked three Motley Fool contributors for their take on three of Wood’s picks: MercadoLibre (NASDAQ:MELI), Roku (NASDAQ:ROKU), and Roblox (NYSE:RBLX). Here’s why they think these stocks could soar in the coming years.
A growing fintech business plus a thriving e-commerce platform equals a great opportunity
Brian Withers (MercadoLibre): MercadoLibre may not be one of Cathie Wood’s ARK fund’s largest holdings, but with more than $180 million in the stock, she clearly likes this Latin American specialist. If you think you’ve missed out on the run with MercadoLibre, you are wrong. It still has plenty of opportunity to grow in its core markets and beyond. Even though it is known for its e-commerce platform, its fintech business is providing plenty of lift for this growth stock to soar.
Founded in 1999, MercadoLibre has long been an e-commerce presence in Latin America. But early on in its history, the company realized that many consumers in the region were not able to participate in the e-commerce trend due to the underbanked and unbanked status of its citizens. So in 2003, Mercado Pago was established to provide digital payment capability for consumers on its marketplace platform. Since then, its payments segment has become a huge winner.
Over the last 12 months, Mercado Pago has processed over 2.2 billion transactions for a total of almost $57 billion. In the most recent quarter, its payment transaction value has grown an amazing 129% year over year in local currency. What’s even more impressive is that the company’s off-platform (in local shops and other non-MercadoLibre marketplace payment locations) payments dollar volume is even bigger than on-platform and has grown at a faster rate. It’s not surprising this business is growing by leaps and bounds with less than 50% of adults in Argentina, Mexico, and Columbia having a bank account or debit card.
But the fintech business is not just about payments. Mercado Pago is becoming an end-to-end digital banking platform with products like insurance, mobile wallet, loans, and investments. But that’s not all. Did I mention that MercadoLibre also has the leading e-commerce platform in the region? There is lots to love about this well-established e-commerce player and up-and-comer fintech. It’s no wonder the ARK funds recently added over 13,000 shares to their positions. If you have $5,000, or even $500 at your disposal, you could pick up a share or even dip your toe in with a partial share. If you buy now and hold for the next three to five years (or even for the next decade), you’ll be happy you did.
A big bet on streaming video
Danny Vena (Roku): Cathie Wood has become something of a rock star among investors, with her five flagship exchange-traded funds (ETFs) crushing the results of the broader market over the past year, primarily due to her focus on emerging and disruptive technology.
With a host of streaming video stocks to choose from, Roku is Wood’s largest holding in the space, representing the No. 2 position in the ARK Innovation ETF and a top 10 holding in the ARK Next Generation Internet ETF. So why is Wood so sold on Roku?
Roku has remained true to its service-agnostic stance, providing a platform for all comers. The company hosts more than 10,000 different channels, from paid subscription services to ad-supported channels, and even hybrid arrangements that offer a little of both.
As a result, Roku has a treasure trove of viewer data, which helps the company more accurately target its digital ads. The company negotiates the rights to 30% of all advertising that appears on its platform, as well as a payment for each paid streaming subscriber it recruits.
In fact, investors might be surprised to learn that the majority of Roku’s revenue comes not from the sale of set-top boxes and dongles, but from its platform segment, which includes The Roku Channel, digital advertising, and the Roku operating system (OS). The company licenses its OS to smart TV manufacturers for a nominal fee, so they don’t have to reinvent the wheel. The Roku OS has become an important contributor to the company’s growing ecosystem, making it easy for users to connect seamlessly to its platform without the need for an additional device.
In the first quarter, Roku’s overall revenue grew 79% year over year, but those results were overshadowed by revenue from its platform segment, which grew 101%. The company’s viewer metrics were also robust, as streaming hours surged 49% to 18.3 billion hours. This was driven by active accounts that climbed 35% to 53.6 million, while its average revenue per user (ARPU) jumped 32%.
What makes these results all the more remarkable is that many investors assumed Roku’s growth would grind to a halt with the lifting of the pandemic-related restrictions in recent months. It’s worth noting that Roku’s platform growth has accelerated sequentially in each of the past three quarters and its first-quarter results marked its highest growth rate in three years.
Roku is well positioned to benefit from the accelerating adoption of streaming video. Given the company’s impressive results and stellar execution, it’s little wonder that Roku is a favorite of Cathie Wood’s and a staple in ARK Investment Management’s high-profile portfolios.
This video game stock is a winner
Chris Neiger (Roblox): Roblox is a video game platform that allows its users to not just play games but also create their own.
The company has been a smashing success and has more than 43 million daily active users, 100 million global active users, and a staggering 8 million developers creating games on the platform.
Wood has noticed Roblox’s explosive growth and owns shares of the video game company in her ARK Next Generation Internet ETF, and investors may want to follow her lead. Roblox is tapping into the massive video game market that will nearly double in size over the next six years to $293 billion by 2027.
In the most recent quarter (reported on May 10), Roblox’s sales skyrocketed 140%, its bookings soared 161%, and the number of hours its users were engaged with Roblox’s platform spiked 97% to 9.7 billion hours.
With its impressive growth, it’s no wonder why Wood thinks Roblox is a winner. The company just went public a few months ago and since its stock market debut its share price has jumped 23%. And with Roblox still firmly in growth mode and the company offering something truly unique in the video game industry, it’s likely that Roblox has a lot more room to run.
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.