But then the rapid pandemic-fueled growth from which many of Wood's holdings benefited dissipated, and their share prices plummeted. The tech heavyweight Nasdaq Composite Index entered a bear market in 2022 and ended with a 33% drop for the year. One lesson investors can learn from last year's market is that even the most innovative companies can see their stocks plummet.
However, this reality hasn't stopped Wood from remaining bullish on innovators. Here are three declining growth stocks that Wood is still bullish on.
Roku
Leading video streaming platform Roku (ROKU 6,58%) has faced some significant issues recently, and its stock has fallen 82% in 2022. Inflationary pressures have led to higher manufacturing costs for its hardware products, and management has decided not to raise these prices for customers, resulting in negative hardware gross margins for the past six quarters.
Furthermore, the weaker advertising market is hurting Roku's outlook. When the Federal Reserve aggressively raised key interest rates last year to combat rising inflation, many executives began preparing for a recession. And when a negative macroeconomic outlook sets in, advertising budgets are among the first things companies cut. During the first nine months of 2022, Roku grew its revenue by 19% year-over-year. For the fourth quarter that just ended, management expects a decline of 7.5%.
But it's not hard to see why Wood loves Roku so much. It provides an invaluable service for viewers who want easy access to all their streaming services in one place, for content companies looking to reach large audiences, and for advertisers looking to market in this connected TV environment. Roku's active accounts grew 16.51 TP3T year-over-year in Q3 2022 to 70 million, with consumers streaming 23.9 billion hours of content on its platform in that quarter alone.
As of December 31, Roku was the fourth-largest holding in the Ark Innovation ETF.
Block
Shares of the pioneering fintech Block (3.25% SQM) formerly known as Square, is down 61% in 2022 and is now trading at a price-to-sales multiple of 2.6, close to the cheapest it has ever been by that metric.
This lackluster stock performance may not be justified, as the digital payments innovator increased gross profit in both its Square and Cash App segments by $291 trillion and $511 trillion, respectively, in the third quarter—its longest-ever reported quarter—year over year. This is respectable growth in this type of economic environment.
Its Square segment, which processed $1.5 billion in gross payment volume in the third quarter, is a mission-critical service provider for its customers. Small merchants rely on Square as the backbone of their daily operations. Without it, they risk losing sales and customers.
Cash App, on the other hand, is a thriving mobile finance app that has amassed 49 million monthly active users. It provides a seamless user experience, allowing account holders to handle basic financial services like registering a debit card or buying stocks, all without the hassles of a traditional bank.
With a total addressable market of $120 billion in gross profits in 2022 – and expanding every year – there is nearly unlimited potential for Square and Cash App to ride the secular trend of electronic payments.
Block is currently the fifth largest holding in the Ark Innovation ETF.
currency base
Since its initial public offering in April 2021, Global currency base (MONETA 15.75%) saw its shares plummet 84%. External factors may be to blame, namely the current "crypto winter," as well as recent bankruptcies and high-profile scandals in the cryptocurrency industry that have depleted people's faith in cryptocurrencies.
Because Coinbase generates most of its revenue, $631,000 in the third quarter, from transaction fees, the business is heavily influenced by investor interest in digital assets. When cryptocurrency prices typically rise, Coinbase has no problem attracting more users who trade frequently. When cryptocurrency prices fall, as they did in 2022, the company posts net losses and has to lay off employees.
However, the hope is that Coinbase can help usher in the next phase of cryptocurrencies, where they will cease to be primarily assets for financial speculation and instead become dominated by public services. This shift may take several years, but if decentralized applications and non-fungible tokens take off and become commonplace parts of people's financial lives, it's hard to imagine a world where Coinbase doesn't serve as the primary gateway app for many to access the cryptocurrency economy. And in that scenario, the stock's rally is absolutely massive.
As of December 31, Coinbase was the eighth-largest holding in the Ark Innovation ETF.
Neil Patel holds positions in Block. The Motley Fool holds positions in and recommends Block, Coinbase Global, and Roku. The Motley Fool has a disclosure policy.
