Cathie Wood began 2023 with a bang. She's hoping to end it that way, too. The co-founder, CEO, and ace stock picker for the Ark Invest family of exchange-traded funds was busier than usual on the final trading day of last week. What's she buying now?
Wood added to her existing stakes in Toast (NYSE: TOST), Unity Software(NYSE: U), and The Trade Desk(NASDAQ: TTD) on Friday, part of the five established positions that she was buying. Let's take a closer look.
Toast has given its investors some indigestion this month. The shares are down 18% since the company posted poorly received third-quarter results on Nov. 7. The popularity of Toast as a point-of-sale platform for restaurants is booming. It served up $33.7 billion in gross payment volume for the quarter, a healthy 34% increase over the past year.
The rub is that the number of restaurants on the platform also rose by 34%. The average eatery location is ringing up as much in sales as it was a year ago. Making matters worse, Toast warned that it sees revenue per location declining in the current holiday quarter. Toast is not profitable yet, but it is generating positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Unfortunately, the $5 million to $15 million that it is now modeling for the fourth quarter is less than half the $35 million it just posted in the third quarter. In short, a general softening in the restaurant industry is hurting both ends of Toast's business.
At least six major analysts either downgraded Toast after this month's financial update or hosed down the stock's price target. Bulls got a break from the bearishness a few days later when David Koning from Baird upgraded Toast.
Koning apparently feels that the post-earnings sell-off was overdone. Toast continues to gain market share, and the analyst said it can grow its top line at a 20% to 25% rate for several years. Toast will inevitably be at the mercy of consumer spending habits, but if it continues to grow its network and expand its offerings it should serve Wood well over the long haul. A single bad course doesn't ruin the whole meal.
Unity Software also had a financial update this month that initially seemed troublesome, but unlike Toast these shares quickly recovered. The game engine developer has been making headlines lately, and they're not all positive. It announced a new fee for developers this summer, but had to reverse the decision two weeks later after swelling backlash from developers. There's a new CEO. It also announced weaker-than-expected revenue, suspending near-term guidance until Unity was able to achieve some more clarity.
The stock moving 14% higher in November despite a whirlwind of cloudy activity is surprising, but Wood will obviously take the upticks. Unity stock is essentially back to where it was at the beginning of the year.
The Trade Desk
Wood was also buying shares of The Trade Desk, another company that initially took a hit after a quarterly update that didn't exactly resonate with investors. Revenue and earnings exceeded expectations for the third quarter, but sometimes a beat isn't enough to keep the gains coming.
The Trade Desk is the undisputed leader in programmatic advertising. It's gaining market share among adtech stocks, just as Toast is growing faster than the restaurant industry. However, in this case investors were concerned about the high-tech marketing mogul's guidance heading into the telltale holidays. The Trade Desk noted that a slowdown in spending since the second week of October -- largely in autos, media, entertainment, and consumer electronics -- finds it modeling a softer current quarter than what the market was expecting. Wood is obviously eyeing the long-term story here, so taking advantage of a near-term sell-off in the shares makes perfect sense.
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Rick Munarriz has positions in The Trade Desk and Toast. The Motley Fool has positions in and recommends The Trade Desk and Unity Software. The Motley Fool recommends Toast. The Motley Fool has a disclosure policy.