Investor Insights Into Ark's $40M PINS Investment – Buy or Wait?

The San Francisco-based digital content provider Pinterest, Inc. (PINS) recently experienced a spike in attention on social media and financial news websites following the company’s mixed fourth-quarter results, with the bottom line surpassing the analysts' consensus estimates but the revenue missing the same.

The image-browsing platform's shares experienced a sharp decline of approximately 10% following the release of its fourth-quarter results, primarily due to the fiscal 2024 first-quarter guidance falling short of Wall Street's expectations.

Cathie Wood-led Ark Invest purchased $40.3 million worth of PINS shares last week through ARK Innovation ETF (ARKK) (882,085 shares), ARK Next Generation Internet ETF (ARKW) (175,911 shares), and Ark Fintech Innovation ETF (ARKF) (79,485 shares).

Ark Invest's bold purchase appears to underscore confidence in PINS' long-term prospects despite recent hurdles. This optimism stems in part from the silver linings in PINS' quarterly results.

While PINS failed to meet its projection, revenue grew 12% year-over-year, reaching $981 million, marking continued double-digit growth in the second half of 2023 and its fourth consecutive quarter of acceleration in its top-line growth rate. With predictions for the first quarter of fiscal 2024 indicating a minimum of 15% revenue growth, PINS is potentially on track for yet another quarter of revenue growth.

Its sizable growth in its user base, noting 498 million global monthly active users for fiscal year 2023, reflects a 10.7% increase year-over-year. PINS' notable improvements in profitability were also highlighted. Its overall costs and expenses for the fourth quarter dropped by 9.9% compared to the prior-year quarter.

Through efficient cost management, including a 24.1% year-over-year reduction in sales and marketing expenses, PINS recorded a net income of $201.18 million for the quarter, resulting in a robust profit margin of 20.5%. Additionally, in 2023, PINS net cash provided by operating activities stood at $612.96 million compared to the previous year's total of $469.20 million.

Moreover, PINS recently commenced an advertising partnership with Amazon and also announced an upcoming collaboration with Alphabet-owned Google during its fourth-quarter earnings call. This latest partnership with Google would be PINS’ second third-party advertising partner on the social network.

While PINS management acknowledged that third-party partnerships had not substantially impacted fourth-quarter results, they noted a significant contribution to the current quarterly growth, anticipating this trend would continue. CEO Bill Ready further confirmed that the demand for third-party advertising is scaling as planned.

A significant 80% of PINS’ user base hails from outside the U.S., although this demographic generates only 20% of the company's revenue. The new alliances with tech behemoths Amazon and Google are predicted to ramp up user engagement. By tapping into the vast user bases of both Amazon and Google, PINS could potentially reach fresh audiences, subsequently expanding its user base and generating considerable growth in both user figures and platform activity. Ultimately, this will likely result in a rise in average revenue per user.

Additionally, these partnerships could enhance opportunities for monetization through advertising, affiliate marketing, and e-commerce transactions. This strategy has the potential to increase both revenue and profitability significantly.

Successfully implemented, these collaborations could consolidate PINS' competitive foothold in the digital landscape. The true success, however, will hinge on efficient execution, continued innovation, and the ability to leverage synergies among all parties involved.

Despite PINS' accelerating growth and promising upcoming partnerships, its recent stock downturn could be seen as a buying opportunity for long-term investors – an analysis backed by Ark’s substantial $40 million investment in PINS.

JP Morgan analysts echo this optimism, forecasting a robust 2024 performance for PINS. They cited new partnerships with Amazon and Google, expansion in regions beyond the U.S., and investments in new PINS platform products as reasons for their positive outlook. Jeffries analysts were similarly bullish on PINS, predicting that "the fastest rev growth rates are still ahead."

For the fiscal first quarter ending March 2024, PINS’ revenue and EPS are expected to increase 16.2% and 64% year-over-year to $700.23 million and $0.13, respectively.

Moreover, Wall Street analysts expect the stock to reach $43.11 in the next 12 months, indicating a potential upside of 16.9%. The price target ranges from a low of $33 to a high of $50.

Bottom Line

PINS is regarded as a distinct social media platform servicing a unique demographic compared to TikTok or Snapchat. It exclusively caters to individuals' interests and topic-oriented content, setting it apart from its counterparts. The platform's unique structure has garnered significant interest from advertisers, making PINS one of their top preferences. The company has successfully developed comprehensive solutions for advertisers while retaining major brand partners.

Financially stable and fundamentally robust, PINS presents an attractive option for institutional investors. Aside from Ark Investment, multiple institutions have adjusted their holdings in PINS’ stock. Institutions hold roughly 87% of PINS shares. Of the 775 institutional holders, 364 have increased their positions in the stock. Moreover, 124 institutions have taken new positions (15,034,165 shares).

PINS shows promise with revenue growth, favorable user trends, rising profitability, increasing popularity among Gen Z users domestically and abroad, and collaborations with tech giants. These factors make the platform highly appealing.

However, investors should pay heed to its higher-than-industry valuations. Investors need to determine their willingness to partake in long-term investment at no dividend payment and a forward non-GAAP P/E of 27.42x.

While some may perceive this as overpriced, others might find its valuation metrics, for instance, forward Price/Sales multiple of 6.99, justifiable based on anticipated future revenue growth.

Given these considerations, investors should proceed cautiously with any investments in PINS.

Roku’s (ROKU) Prospects Post-Cathie Wood's $13 Million Move: Buy or Wait?

TV streaming platform Roku, Inc. (ROKU) has been going through a purple patch. According to Nielsen, while viewing hours on traditional TV in the U.S. declined by 13% year-over-year, ROKU’s users streamed 25.1 billion hours in Q2, representing 3.8 Streaming Hours per Active Account per day, up 21% year-over-year.

Consequently, for the fiscal second quarter that ended June 30, ROKU surpassed Street expectations by increasing its revenue by 10.8% year-over-year to $847.2 million and narrowing its loss by 7.3% year-over-year to $0.76 per share.

This outperformance triggered a rally of nearly 10%, which has resulted in the stock surging by more than 45% and 96% over the past six months and year-to-date, respectively.

Beyond the financial performance, on June 27, ROKU announced that it would become the U.S. streaming home of Formula E, the electric vehicle-powered auto racing series, with live and on-demand replays of races. This has made it the company’s first-ever live sports rights package at a time when streaming companies are rushing to secure sports broadcasting rights amid growing industry competition.

The company launched Roku-branded TVs (the first TVs designed and made by Roku) in March to offer consumers even more choices and enable more innovation across the Roku TV program. Best Buy is the exclusive retailer for TV, and all 11 TV models have received strong industry reviews and customer ratings of 4.5 (out of 5) stars or higher.

More recently, on August 3, Miss Universe signed a multi-year broadcasting deal with the channel, and on August 10, WildBrain landed multiple kids’ series.

Moreover, in July, ROKU announced partnerships with FreeWheel and Shopify Inc. (SHOP) to bring a suite of industry solutions to unlock the full value of streaming TV for advertisers and publishers and the ability to purchase products from SHOP merchants directly from their TV through Roku Action Ads for viewers, respectively.

Given the tailwinds, for the fiscal third quarter, ROKU expects total net revenue of roughly $815 million and a total gross profit of roughly $355 million. Moreover, Statista forecasts the number of U.S. households with cable TV packages to be down 40% from a decade earlier.

Hence, it’s unsurprising to find analysts expecting ROKU’s revenue to increase by 7.6% year-over-year to $3.36 billion in 2023 and by another 15.3% to $3.88 billion in 2024.

However, anticlimactically, Cathie Wood, the founder, CEO, and CIO of Ark Invest, an investment management firm whose flagship fund, ARK Innovation ETF (ARKK), sold shares of ROKU worth $13.1 million.

ARKK, which seeks to generate long-term capital appreciation by investing in businesses across the globe that seek to benefit from disruptive innovation, alone sold 138,221 shares of ROKU. Despite the sale, the AMC still owns 8,697,614 shares of the streaming company, valued at around $770 million, and the holding is weighted at 9.3% of ARKK's portfolio.

Nevertheless, the $13 million move, albeit amounting to a little above 1% of ARK’s stake in ROKU, has raised eyebrows. However, the move makes sense in the context of valuation.

In terms of the forward EV/Sales multiple, ROKU is trading at 3.11, which is 66.4% above the industry average of 1.87. Similarly, the stock’s forward Price/Sales and Price/Book multiples of 3.43 and 4.93 are significantly higher than the respective industry averages of 1.22 and 1.99.

Such a frothy valuation seems unsustainable for a company that’s yet to turn in a profit and is operating in a competitive and overcrowded sector that has of late found the going tough due to an attention recession to the reopening of the economy after the pandemic, softened demand due to a year-long ordeal with inflation, muted TV advertising, and, of all things, strikes among Hollywood actors and writers.

Hence, while the stock is still trading above its 50-day and 200-day moving averages of $71.84 and $60.05, respectively, it is not difficult to see how the tide might have already begun turning. Moreover, with a 5-year beta of 1.76, volatility also remains an issue.

Bottom Line

In view of the above, it could be wise for investors to hold their horses and wait for ROKU to become profitable or for its valuation to become more attractive before acquiring a stake in the streaming giant, aspiring to go full steam ahead.

Cathie Woods: Bold Prediction for Tesla

Recently the renowned stock picker and Tesla (TSLA) bull made a new price prediction on the automaker, which sounds just as crazy as the last time she made a wild prediction, but the first prediction has come true, and then some.

Cathie Woods is the Founder and lead stock picker for the Ark Invest family of exchange-traded funds. Woods initially started Ark Invest in 2014 and made heavy bets on technology companies.

She became a household name when her original $2,000 price target on Tesla, when the stock was trading for around $300 per share, came true on a split-adjusted basis.

When Cathie initially made her case for Tesla at $2,000, people thought she had lost her mind. They couldn't understand how she arrived at that valuation and why she was so confident in that prediction.

Which, by the way, she was, considering she invested millions in Tesla before it went on its run higher.

Those investments in several different Ark Invest ETFs helped propel several Ark ETFs into the top ten best-performing ETFs for several years in a row.

Cathie is at it again, possibly giving investors a second chance to catch lightning in a bottle.

Cathie Woods Ark Invest owns a little more than $850 million worth of Tesla stock (stock price is currently around $170 per share). She believes the stock price can go to at least $1,400 per share by 2027.

That price is her bear case scenario, with a bull case scenario of $2,500 and a base case price of $2,000 per share. Those figures would represent an eight, eleven, and fourteen-fold return from today's price.

Furthermore, the base-case price of $2,000 per share would give Tesla a market capitalization of $6.3 trillion. For context, two of the largest companies in the world Apple (AAPL) and Microsoft (MSFT), have market caps of $2.7 trillion and $2.2 billion. At $6.3 trillion, Tesla would be worth more than both of them combined. Continue reading "Cathie Woods: Bold Prediction for Tesla"

ARKK Fund's Wild Ride

After its first year of trading in 2015, the ARK Innovation ETF (ARKK) increased by 87.38% in 2017!

The fund produced a gain of 3.76% in 2015 and a small loss of 1.96% in 2016, all of a sudden, the boom in 2017! 2017 was followed up by another modest gain of just 3.58% in 2018. But in 2019, ARKK made 35.73%.

Then, despite 2020 being the year we will all remember the Covid-19 pandemic beginning in the United States and the stock markets crashing when the country shut down in an attempt to slow the spread of the deadly virus, ARKK showed its investors a return of 152.52%.

Unfortunately, in 2021, the fund did not perform as well, actually posting a loss of 23.35% for the year. And while we still have a few months left in 2022, year-to-date ARKK is down 49.17%.

Even though 2021 and 2022 have not been good to ARKK, the fund is still up an annualized 16% over the last five years. That is due to the incredible performance it experienced in 2019 and 2020.

Since its inception, some would say ARKK has been somewhat volatile. That is primarily due to the fund's lead investor, Cathie Woods, and how she takes what many would consider 'very long-shot bets.' Woods often invests in unproven technologies and companies trying to develop cutting-edge technology.

Cathie Woods believes the future of technology will, if it already hasn't, truly change the world. By looking at the performance of not just her flagship fund, ARKK, her other funds all focus on the same idea; finding innovative companies. But that comes with risk.

And Cathie Woods' ARK funds have a lot of risk in them. If the companies Woods invests in don't perform well, Woods funds take big hits. But, the other side of this coin is also at play. Continue reading "ARKK Fund's Wild Ride"

Interesting Start To 2021 For Cathie Wood And ARK Invest Funds

In 2018 an unknown woman came out and proclaimed Tesla (TSLA) was wildly undervalued when the stock was already trading for many multiples, and at levels, most investors considered grossly overvalued. Flash forward to 2020, and most of what this woman name Cathie Wood had proclaimed years prior about Tesla's stock came true.

Back then, Wood's said Tesla would be worth $4,000 per share or a market value of $672 billion; this is when the company was worth $56 billion. Cathie has been proven right about her call on Tesla and has gained massive notoriety because of this bold prediction in 2018. However, her Ark Invest funds have been performing incredibly well even before her Tesla prediction came true as three of her funds, the ARK Next Generation Internet ETF (ARKW), the ARK Innovation ETF (ARKK), and the ARK Genomic Revolution ETF (ARKG) are all in the top ten best performing Exchange Traded Funds over the last five years.

The Tesla prediction coming true, combined with easy access to average investors through Exchange Traded Funds and incredible overall fund performance, has now made Cathie Wood one of, if not the hottest investors to follow, both from a media standpoint and an investment standpoint.

ARK Invests fund inflows have been nothing more than spectacular in 2021, with two of the company's seven funds making the top ten list of most cash inflows. The ARKK fund saw $5.75 billion flow into the fund, making it the ETF with the fourth-highest fund inflows since the start of 2021. ARKG had a $3.68 billion flow into the fund, making it the ninth highest ETF in terms of fund inflows. This is another clear signal that Cathie Wood and her ARK Invest family of ETFs is very popular with investors at this time. Continue reading "Interesting Start To 2021 For Cathie Wood And ARK Invest Funds"