What the heck does Cathie Wood see in Roku?
Maybe she’s looking through hopium-colored glasses
Cathie Wood, who runs Ark Investment Management, has done some serious flip-flopping in the last couple of months.
It looks like, maybe, just maybe she’s coming around to the fact that clients don’t love losing money. No matter how big the proverbial carrot dangling from the stick that is her long-term vision turns out to be. After all, as of now, that carrot is only as big as Cathie Wood says it is … and, based on her recent trades, it looks like it might be getting considerably smaller.
Remember Coinbase? Yeah, before the Terra/Luna collapse people actually used it to buy and sell crypto. Now, investors pretty much just sit around, poke it with a stick and wait for it to do something.
Anyway, Cathie Wood was one of Coinbase’s biggest bulls for a long time.
In early May, the popular stock picker bought nearly a million shares of Coinbase (COIN), making a case that the cryptocurrency exchange has a growth runway longer than the Amazon River.
Here’s what Cathie Wood wrote in a note about Coinbase at the time:
“Given its inherent profitability, competitive position, and massive opportunities, we believe the company is right to focus on investing in its derivatives offerings, NFT platform, and international expansion.”
Again, that was May. Fast forward a couple of months and, well, she turned around and sold those shares right back to the market … and then some.
Officially, Cathie Wood sold 1,133,495 shares of Coinbase late last month. For context, Ark Investment Funds bought $246 million worth of Coinbase shares on the first day of trading, when the stock was at $250 a share. The most recent sale was just a fraction of the overall position.
So what changed?
Cathie Wood said she sold the shares to free up capital to invest in other opportunities.
But Roku … seriously?
I gave it away in the subhead, but, by other opportunities, Cathie Wood meant Roku. Ark Funds added more than 469,000 shares of Roku (ROKU) across three different ETFs last week. That was after an earnings miss that sent the stock tumbling 23%.
Cathie Wood had this to say after the call:
“In our view, the third-quarter guidance is conservative, as Roku reported more than $1 billion in ad commitments during the year’s upfront selling season, representing approximately 16% of upfront CTV ad spend and 5% of total upfront add spend.”
Ad spending is slowing, and Roku most certainly won’t be immune to that. The good news, I guess, is it’s still the top streaming platform by hours streamed in the U.S., Canada, and Mexico.
But is that enough to justify the sheer size of her position?
The Ark Innovation ETF, Ark’s flagship product, holds $745.1 million worth of Roku stock. The position makes up 7.79% of assets.
The Ark Generation Internet ETF now holds $124 million worth of Roku stock, 8.38% of assets.
The Ark Fintech Innovation ETF holds $9 million worth of shares or 0.95% of that fund’s assets.
In all, Ark owns nearly $1 billion in Roku shares.
It makes sense considering Cathie Wood has a price target of $605 by 2026. What doesn’t make sense, though, is how she gets to $605.
Roku is already the North American leader in streaming. Two of its competitors, Apple and Amazon, are coming for the crown, though.
The difference, of course, is Apple and Amazon have other highly-successful/profitable businesses they run along with their streaming offerings, which, are better than Roku’s.
Roku has a lower price point, but that’s about the only thing it has going for it.
Roku’s top streaming player, the Roku Ultra, will set you back right around $99 — a price considerably cheaper than Apple’s device. Apple, though, has a couple of things Roku doesn’t.
Content people want to watch. I binged “Severance” on Apple TV+ a few months ago and thoroughly enjoyed every minute of it. “Ted Lasso” is also worth a watch. Early last month, just those two shows combined to nab 23 Emmy Nominations (12 for “Severance” and 11 for “Ted Lasso”).
Apple, with a way more complex and synergized business model than Roku, has a 25% profit margin, made $387.54 billion in revenue over the last year, and is sitting on a $50 billion pile of cash. Roku, meanwhile, has a profit margin of -1.51%, revenue of $3.04 billion, and $2 billion of cash on the balance sheet. In other words, Apple and Amazon have more money to spend on their content offerings which, and Cathie Wood somehow forgets this fact, will help them gobble up market share and ad spend down the road. If Roku loses that, what does it have left?
Roku has lost 82% of its value over the last year. It currently trades at around $75 a share. To hit Cathie Wood’s 2026 price target, it would have to soar nearly $200 a share higher than its all-time peak of around $470 back in February of 2021.
That’s some insane hopium, guys. That’s all I’m saying. When Roku jumped from $75 a share when the pandemic started to $470 less than a year later, it represented a ridiculous 2,400% move. Do the math. I rounded, but I didn’t make that number up. To hit Cathie Wood’s 2026 target, Roku would have to jump an additional 1,000%, give or take a few percentage points.
It would be a fun ride to be on (if it happens), but I’m not buying a ticket.
Disclaimer: I’m a market participant, not an analyst. This is not financial advice.
