ARK’s Cathie Wood Is Betting On Elon Musk But Her Roku Investment Is A Big Miss

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Cathie Wood, founder, CIO, and CEO Of Ark Invest, said earlier this week that Elon Musk could turn Twitter into a “supper app like WeChat Pay.”

Wood made these remarks during the Web Summit tech conference in Lisbon and at times when Musk grapples to understand what kind of a business he received in exchange for $44 billion.

Wood Better Hope Musk Will Get It Right

Cathie Wood’s remarks shouldn’t come as a surprise given that Elon Musk has already suggested he is planning to turn Twitter into a super app. In October, several weeks before acquiring the social media platform, Musk said in a tweet that Twitter would serve as an “accelerant to creating X, the everything app.”

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“Remember [Musk] started in the payments industry ... he sold his company to PayPal,” Wood said. “He and Jack Dorsey working together, I think, could turn this into a super app.”

WeChat Pay a digital payment feature offered by the Chinese platform WeChat, which provides services like social media, instant messaging, and more. WeChat was the first to gain the status of a “super app.”

Wood added that Twitter could even serve as a digital wallet in the future, providing users with banking features. It is possible that Musk and Dorsey could even connect it with Cash App - the online payments app created by Dorsey’s fintech venture Square.

“You do all your shopping there, you get your loans there — it’s your bank branch in a pocket,” Wood said. “I think they can get this done.”

Wood and Ark Invest have been long-standing proponents of Musk’s work. The investment management firm was also one of the investors in Twitter as a part of the $44 billion takeover that took the social media giant private. Ark founder thinks that Musk is a true believer in vertical integration, adding Twitter represents a perfect fit for this strategy.

The world’s richest person took charge of Twitter last week and fired the entire board immediately after taking the wheel. However, the buyout of Twitter could still face scrutiny by regulators and civil rights activists who believe Musk could promote harmful content on the platform.

Wood also said she believes Musk can turn Twitter into open-source software, which would allow the public to access, edit, and share the platform’s code.

Roku - Evidence of Wood’s Falling Investing Strategy in 2022

Wood’s remarks also come at times when her flagship tech-investing fund ARK Innovation ETF (NYMARKET:ARKK) is down more than 60% year-to-end (YTD). The soaring inflation prompted the Fed to tighten monetary policy, an environment which is impacting both tech stocks and even trading volume on stock brokerages big time.

ARK’s forecasts for 2022 have proved to be so aggressive that their open-source model projected that shares of Roku could hit $605 by 2026. As of November 03, ARK owned over 9 million Roku shares with the cost average price exceeding $240 per share.

Roku, the streaming-video business, trades around $50 per share today, down almost 80% YTD.

“Based on our assessment of 75th and 25th percentile outcomes, our bull and bear cases are $1,493 and $100 per share, which would deliver annualized returns of 88% and 3%, respectively, as shown below,” Ark wrote in a blog post.

The company saw its market cap plunge by almost 10% on Thursday after issuing a disappointing forecast. Roku’s Q4 revenue forecast widely missed the consensus estimate, while the company also said it expects to post a greater-than-expected operating loss.

Despite the fact that the business added 2.3 million active accounts during the third quarter, its operating loss jumped more than 300% YoY to $147 million. Roku blamed “elevated” supply chain costs on ballooning losses. Net-net, Roku posted Q3 revenue of $761.4 million, marking a quarter-to-quarter declaration from Q2’s $764.4 million.

Wedbush Securities analysts described Roku as “dead money” over the following two quarters, though a rebound can be expected in the following twelve months given the magnitude of this year’s selloff.

Roku’s CEO Anthony Wood believes the current adverse conditions are temporary, though it is not easy to say when things might improve, he wrote in a letter to investors. This type of commentary has also weighed on shares with investors preferring to invest in businesses that offer a higher degree of certainty.

Summary

Ark Invest’s Wood said her flagship fund invested in Twitter, helping billionaire investor Elon Musk in taking the social media company private. In the meantime, Ark’s other tech investment, Roku, saw its shares plunge again to the lowest levels since 2019 on yet another dismal quarterly earnings report.

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