Famous investor Cathie Wood has some stocks in her ETF Innovation ARK portfolio that took a hit in 2021. Popular investment manager gravitates towards innovative growth companies; hence the name ARK Innovation.
Roku (NASDAQ: ROKU) and DraftKings (NASDAQ: DKNG) are two stocks in his portfolio that are both down more than 20% since the start of the year. Let’s take a closer look at each to see what might make them great buys right now.
The streaming media juggernaut Roku has been one of the main beneficiaries of the coronavirus pandemic. Since people spent a lot more time at home than usual, they considered streaming content to be one of the safest forms of entertainment. As a result, Roku added new customers and the engagement of existing viewers skyrocketed. Unsurprisingly, Roku’s revenue grew 57% in fiscal 2020.
As more people get vaccinated and the economy reopens, Roku experiences unwanted side effects. Active accounts and customer engagement remain high, increasing 23% and 21% year-over-year respectively in the third quarter. Instead, it’s the supply chain bottlenecks that negatively affect Roku. The gross profit margin of its players has gone from positive 15% a year ago to negative 15% today.
Yet supply chain issues will eventually go away. Meanwhile, Roku’s long-term outlook is excellent as more and more consumers turn to linear TV streaming content and also as the business expands internationally. Roku stock is down 23% year-to-date in 2021, making it an attractive entry point for investors.
For gaming enthusiasts, DraftKings offers a variety of ways to spend their time, whether it’s mobile sports betting, daily fantasy sports, or iGaming (casino style games).
The company is gaining traction as state regulators increasingly endorse the gaming services it offers. In fact, DraftKings is now available in 15 states for mobile sports betting and in five states for iGaming. Additionally, the company was recently licensed to operate in New York State, which could generate around $ 1 billion in gross annual gaming revenue.
Going live in a new state brings a wave of new customers to DraftKings. Indeed, the company increased the number of monthly unique players to 1.33 million in the nine months ended September 30, from 679,000 in the same period last year. These consumers are also spending more on its platform. Average income per player fell from $ 41 to $ 61 in the previous year. That’s excellent news.
So why has the stock fallen 28% since the start of the year in 2021? DraftKings spends heavily on sales and marketing to attract new players and entice them to place bets. In the nine months ended September 30, the company spent $ 703 million on sales and marketing. Meanwhile, revenue rose to $ 823 million during the same period.
The good news for shareholders and potential investors is that DraftKings’ marketing spend doesn’t need to stay where it is forever. It’s that high level mainly because the company continues to move into new states – a good step as it expands its potential market. Once those first spending cycles are over, DraftKings has the potential for healthy profit margins. After all, it is much cheaper to operate an online gaming company than a physical one.
Overall, the shares of these two excellent companies are down due to economic factors. This could make it a great time to add Roku and DraftKings stocks to your 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.