After a tough 2022, this year has been a much better one for growth stocks. That’s evident just by looking at Ark Invest’s Ark Innovation ETF, which is up by more than 40% since the start of January. The benchmark ETF from Cathie Wood’s investment firm is full of growth stocks that have been flying high this year, including DraftKings (NASDAQ: DKNG), Coinbase Global (NASDAQ: COIN), and Roku (NASDAQ: ROKU). Year to date, all three Cathie Wood stocks have more than doubled in value.
Is the hype surrounding these three stocks legitimate? Should investors continue buying up these investments, or are they in danger of running out of steam?
One of the hottest stocks this year has been DraftKings. The sports betting company is thriving, its sportsbook is live in more U.S. states, and its fantasy sports platform is available in most parts of the country.
The company is growing its user base, reporting 2.3 million average monthly unique paying customers as of the end of September. That’s a 40% increase from a year ago. And with mobile sports betting still only live in 22 states and future legislation potentially opening up more options, there are plenty of reasons for growth investors to remain bullish on the company’s future.
This year, DraftKings expects revenue to come in at around $3.7 billion, a 68% increase from the $2.2 billion it reported in sales last year. Next year, it expects even more growth, with revenue potentially topping $4.8 billion. There is some risk with the stock as DraftKings isn’t profitable, but next year it projects that it will post an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of at least $350 million.
Given its impressive numbers and strong presence in the industry, with much more growth still on the horizon for DraftKings, it’s not too late to invest in the stock.
Coinbase runs a leading cryptocurrency exchange, and its performance tends to align closely with the popularity of digital currencies, including Bitcoin. So it’s little surprise that as Bitcoin has more than doubled in value this year, Coinbase has as well. The prospect of a Bitcoin exchange-traded fund (ETF) becoming available in the near future has helped fuel crypto prices and investor enthusiasm about the long-term prospects for investing in digital currencies.
The company’s financials are also much better, as Coinbase has slashed operating expenses significantly. As a result, the company’s operating loss of $277.3 million through the first nine months of the year is nowhere near the $2.2 billion operating loss Coinbase had incurred at this point in 2022.
Coinbase can be a good stock to own if you’re bullish on crypto, but it comes with plenty of volatility. Last year, as the price of Bitcoin fell by 65%, Coinbase’s stock value crashed by 86%. While the good times can be great for investors, the bad times can be abysmal. Unless you’re prepared for that kind of a roller-coaster ride, you may want to avoid putting this stock in your portfolio, despite its impressive gains this year.
Roku was a struggling stock last year, having fallen 82% as a weak ad market and a gloomy outlook for the economy were weighing down the business. But now, with Roku reporting some decent numbers of late, the bullishness has returned in a big way.
Last quarter, Roku reported net revenue of $912 million, which was up 20% year over year. Streaming hours on Roku’s platform also jumped by 22% to 26.7 billion. With plenty of free content on its platform and being a hub to help people manage multiple streaming subscriptions, Roku’s software remains popular.
Roku has been a solid buy, but the one thing that prevents me from investing in it today is that its gross margins have been falling and are consistently below 50%. And with the company focusing more on hardware (like TVs) and other lower-margin products, Roku may not get back into the black anytime soon — this past quarter it posted an operating loss of just under $350 million.
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