It’s easy for growth investors to warm up to Cathie Wood’s freshest stock ideas. The popular money manager behind ARK Invest’s widely followed exchange-traded funds (ETFs) that trounced the market last year offers up daily updates of her buys and sells.
Unity Software (NYSE:U), UiPath (NYSE:PATH), and Spotify (NYSE:SPOT) stand out among her purchases on Tuesday. Let’s see why she may be onto something with all three stocks.
We’re spending a lot of time playing mobile, video, and PC games these days, and Unity Software helps developers cash in on the revolution. Unity’s cloud-based platform for real-time 3D content creation is hot, and the runway is long as Unity’s market expands from gaming to include Hollywood studios, architects, engineers, and graphic designers.
Revenue rose 43% last year, including a 39% top-line increase in February’s fourth-quarter report. Last month it accelerated its growth sequentially, reporting a 41% increase in revenue for its fiscal first quarter. Unity has corrected sharply since peaking in December. It’s starting to bounce back, but it’s still trading 44% below the highs it hit six months ago. Wood isn’t afraid to pay up for disruptive growth stocks, but taking advantage of a markdown is even better.
Wood isn’t afraid to chase hot IPOs. UiPath went public in April at $56, and the provider of next-gen enterprise software automation has been a hot debutante, rising 36% through Tuesday’s close. UiPath’s platform is a leading robotics process automation — or RPA — solution that helps companies scale their digital business operations. In short, it’s all about robotics taking over some of the more mundane company tasks to help improve efficiency and labor costs.
UiPath reported heady growth in its first financial results after Tuesday’s market close. Revenue of $186.2 million for the first quarter of fiscal 2022 is a 65% year-over-year increase. Annual recurring revenue has climbed 64% to $652.6 million over the past year. It’s a big step up, but the stock opened sharply lower on Wednesday. Revenue soared 81% in fiscal 2021, so this is actually top-line deceleration. It’s still a strong report. The stock’s big run in less than two months makes a correction natural. Wood probably wanted to get in ahead of what she figured would be a blowout performance, but now she’ll get a chance to add more on the way down if she decides to go that route.
The one name on this list that isn’t a recent IPO is Spotify. The popular music streaming platform hit the market as a direct listing three years ago. Spotify is a global juggernaut in your ear. There are now 356 million monthly active users, up 24% over the past year. It’s still posting double-digit growth across all regions.
More than half of those users are free ad-supported users, but Spotify has a strong game on the premium end. There were 158 million paying users on the platform at the end of March, a 21% year-over-year increase. Spotify has tried to differentiate itself from the competition by embracing podcasting. There are now 2.6 million podcasts on its platform, including some popular exclusive content.
Spotify remains a couple of years away from profitability, but investors are patient. Spotify is canvassing the planet with sound, and building out its global audience is what matters at this point.
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.
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