A Tesla Bull Explains the Stock's Risks—and Where Cathie Wood Could Be Wrong


Barron's 07 August, 2021 - 11:06am 96 views

What is a meme stock?

Meme stocks are the shares of companies that have seen a recent surge in viral activity, which is usually fuelled by online social media platforms such as Reddit and Twitter. The buzz over a particular stock prompts retail traders to buy the stock with the knowledge that its share price will likely rise. CMC Markets5 Booming Meme Stocks to Watch in 2021

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A lot of investors were selling Roku (NASDAQ:ROKU) on Thursday. ARK Invest CEO, founder, and master stock picker Cathie Wood was buying.

Wood added shares of Roku to a pair of her exchange-traded funds (ETFs), and you have to go a long way back to find the last time that she was adding to her position of the streaming media pioneer for her high-growth ETFs.

You have to go back nearly three months, precisely -- all the way to May 12 -- to find the last time that ARK Invest was adding shares of Roku. Since then, she executed a dozen different sell transactions, lightening her load of Roku.

Why is she buying back in just as momentum was shuffling to the exit door? There's a method to her madness, and it smells like money.

Roku shares closed 4% lower on Thursday (trading down by as much 10% at one point) after the company posted disappointing second-quarter results. Revenue and earnings blew past expectations, and top-line guidance for the current quarter was also comfortably ahead of where the pros were perched. The stock was dinged on a grim bottom-line outlook that will linger through 2022.

Roku warned that supply chain constraints will eat into device and smart-TV sales, and increasing costs there will gnaw away at the margins on the hardware front. Its bread-and-butter platform revenue, which now accounts for 83% of the top-line mix (a business that more than doubled in size over the past year), is also facing some near-term headwinds. Operating expenses are moving higher on an uptick in costs related to head-count increases, product development, and sales & marketing. 

After a blowout quarter on the bottom line, Roku expects to barely break even in the third quarter, with adjusted EBITDA falling sharply on a sequential basis. It's a bad look for a stock that was gaining momentum this summer the way it did during the second half of 2020. 

Roku was an odd bird last year. Despite being an obvious pandemic play with folks spending so much time streaming at home, the stock actually declined through the first six months of last year. It would go on to nearly triple, up 185%, through the final six months of 2020.

Wood knows what she is doing. She has to know that the near-term slowdown on the supply end will be temporary. She invests in enough early-stage and disruptive growth stocks to know that sometimes you have to invest now to grow substantially later. Roku is increasing its spending on original content this year, which is something that will pay off in the future by making the leading platform even more distinctive and valuable. 

Another knock in the report was a sequential dip in usage, but that's a logical reaction to an economy that started opening up in the springtime. Social calendars actually started to get put to work in recent months. Roku is still growing its audience. Active accounts have climbed 28% to a record 55.1 million over the past year.

Roku's report wasn't a perfect one, but there is no line item that will weigh on its near-term earnings that is expected to be a long-term concern. You can't fault the market for the stock moving lower on Thursday, but you also can't blame growth investors with a long-term investing horizon if they approach the report as a buying opportunity.

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Cathie Wood, Meme-Stock Champion Who Bet Big on Tesla and Bitcoin, Stands Her Ground

The Wall Street Journal 07 August, 2021 - 06:10pm

Behind the adoration is her unchecked enthusiasm for a certain kind of speculative investment: companies that generate little or no profit but have what she says is the potential to change the world through “disruptive innovation.” Her asset-management firm, ARK Investment Management LLC, has bet heavily on buzzy sectors including alternative-energy businesses, space exploration and digital currencies.

Her focus on meme-worthy investments and her ubiquitous presence on Twitter and financial news channels have thrust her alongside market influencers such as Tesla Inc. Chief Executive Elon Musk, venture capitalist Chamath Palihapitiya and Barstool Sports founder David Portnoy, who use Twitter, YouTube and podcasts to take their messages directly to a new generation.

Last month, Ms. Wood joined Mr. Musk and Jack Dorsey, chief executive of Twitter Inc. and Square Inc., for an hourlong virtual discussion on the potential of bitcoin, which had been falling in value for months. “Think about how explosive growth could be,” Ms. Wood said at one point.

Among the converts was rapper Busta Rhymes, aka Trevor Smith Jr., who tweeted he was “sold on bitcoin” a day after listening to the three talk up the cryptocurrency.

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Betting Against the Ark ETFs Is Good for Cathie Wood

Bloomberg 07 August, 2021 - 06:10pm

Anything that can bring attention and trading volume to a fund is  positive for its long-term staying power.

Photographer: Alex Flynn/Bloomberg via Getty Images

The old cliché that there is no such thing as bad publicity is proving true in the market for exchange-traded funds. Here, products are abundant but attention and liquidity are a scarcity, especially for funds that aren’t cheap and are serving up some kind of “active” strategy. So anything (within reason) that can bring attention and trading volume to an ETF is generally a good thing for its long-term staying power. 

TuSimple Holdings is still a favorite at ARK Invest

Seeking Alpha 07 August, 2021 - 06:10pm

Ark Invest CEO Cathie Wood has been hightailing out of Chinese stocks. She breaks down her strategy amid expanding regulatory crackdown — including what she'll be buying instead with the cash raised.

Business Insider 07 August, 2021 - 12:00am

Wood, who hunts for companies at the cutting edge of technological innovation and exponential growth, has long looked to the world's second-largest economy for opportunities. However, in light of the Chinese government's recent regulatory crackdown on Chinese tech and education stocks, Wood has reduced China's weighting in her portfolios to nearly zero. 

As of July 31, the firm's flagship Disruptive Innovation ETF and Next Generation Internet ETF had both reduced their China weightings to zero. Meanwhile, the Ark Fintech Innovation ETF had cut its exposure to Chinese stocks to 10% from around 20%, while the ARK Autonomous Technology & Robotics ETF reduced exposure to 12% from around 15%, according to Insider's analysis of Ark's daily emails that show trades in its actively managed ETFs.

Specifically, Ark sold out of Agora, the audio-tech company that powers Clubhouse, and real estate stock KE Holdings. It held just 11 Chinese stocks at the end of July.

Wood's change of stance came amid a sweeping regulatory crackdown that has impacted almost every sector from technology to education. It started with ride-hailing app Didi Global's IPO debacle. Just two days after the juggernaut's landmark $4.4 billion IPO, the Cyberspace Administration of China launched an investigation into the company and forbade it from registering new users. Since then, Didi's app has been removed from app stores and Chinese securities regulators are now proposing new rules that would discourage Chinese tech companies from listing overseas.

"I think Didi incurred the wrath of the Chinese government like I've never seen. I can't believe that they did go public," Wood said on a July 15 webinar. "I think that a lot of companies are going to make sure they've crossed every t, dotted every i, and checked in with the central government as well as the regulatory agencies before they go public again."

Earlier in the year, Wood, who is crowned as the "Queen of the Bull Market " on China's Twitter-like platform Weibo, was thinking about expanding Ark's Asia presence.

Last September, Ark had hired analyst Yulong Cui to cover next-generation innovation themes across Asia. And in previous Ark webinars, Wood highlighted how increased corporate and capital-gains taxes in the US could drive innovations offshore to geographies like China. 

"We have learned a lot from China in terms of fintech," Wood said in a March CFA Institute webinar. "In fact, I have to say, it opened our eyes in 2017 to see WeChat pay and Alipay, their mobile payments, exploding. I didn't believe the numbers when I saw them but it taught us how big that particular development was going to be for the developed world."

Now, Wood is concerned that China's tech juggernauts would have to look more inward for growth opportunities. 

"What I think, especially for the mega-cap companies, in order to sustain their growth rates, they need to start moving outside China and scale in the rest of the world," she said in the July webinar. "They may be able to do that in Southeast Asia, but even there the political dynamics are such that there's going to be some fear of China."

Wood started to lose confidence in Chinese stocks when Alibaba founder Jack Ma disappeared from public view after making brash comments condemning stringent banking regulations in China. His actions eventually led the government to scuttle Ant Financial's $37 billion IPO, which was expected to be the world's largest ever. 

"We realized that China had reached a point and many of these mega-cap stocks and their leaders had reached a point where the Chinese government was beginning to feel a challenge, something that they would not tolerate," Wood said. "That does cast a pall over entrepreneurs in the nation who really want to hit mega-cap status, so there's a little bit less of an incentive to do that."

In her view, Chinese regulators' crackdown has been further exacerbated by "this surprise that the Biden administration is holding as tough a line on China as the Trump administration was," 

As a result, Ark has been selling Chinese stocks almost every single day for the past two weeks. Wood said she has used cash raised from these stocks to consolidate her portfolios towards Ark's highest-conviction names instead. 

"We were getting too many signals from China that maybe the bloom was off the rose at least for a while," she said. "And we decided to use the Chinese names as sources of cash."

Chinese stocks have broadly recovered after expanding government crackdowns wiped off almost $800 billion of their market value since a peak in February.

Ominously, the series of crackdowns is not over yet. Tencent and other video gaming companies plunged on Tuesday after a Chinese state-run media outlet called online gaming "spiritual opium" and "electronic drugs," raising investor concerns about the online entertainment sector becoming the next target. Additionally, the government's recent plan to turn after-school tutoring companies into non-profits could make the entire $100 billion sector "un-investable," JPMorgan analysts said.

Wood is not completely ruling out China in her portfolios yet, but that could soon change. 

"I think they're putting the reins on now, but I think they will let go of them a little bit at a time perhaps in the future," she said. "So this may be more tactical than a secular move but that remains to be seen."

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