Why Does Cathie Wood Like Roku?

Cathie Wood is an esteemed investor who has worked with some of the country’s most prominent firms, including Capital Group, Jennison Associates, and AllianceBernstein, where she served as CIO of global thematic strategies. She left AllianceBernstein in 2014 after a disagreement about her plans to invest in disruptive technologies.

What Does Cathie Wood Invest In?

After leaving AllianceBernstein, she founded ARK Invest. ARK Invest has followed her investment strategy, choosing to create funds that include companies involved in artificial intelligence, electric vehicles, DNA sequencing, and blockchain technology.

Keeping in line with her interest in emerging technologies, Cathie Wood has shown significant interest in Roku (ROKU).

As of April, 2021, Roku accounted for 5.25 percent of ARK’s Innovation ETF. Only Telsa (TSLA) and Teladoc Health (TDOC) have larger percentages—9.73 percent and 6.09 percent, respectively.

Why Did Cathie Wood Buy Roku?

Roku went public in early October 2017 with shares price at about $26. The company gained momentum in 2019 as more people turned to streaming services instead of cable television.

The COVID-19 pandemic pushed the company’s shares even higher as the majority of people stayed home to avoid the highly contagious virus.

Without movie theaters and other entertainment options, households turned to their streaming channels to watch video content.

Roku shares exceed $468 in mid-February 2021, up from about $120 one year earlier. Obviously, anyone who bought Roku shares before 2020 made a lot of money during lockdown. While streaming channels like Hulu, Prime, and HBO Max are fighting each other for domination, Roku has few competitors other than Amazon.

Some experts believe that Roku cannot maintain its growth beyond the pandemic. According to them, people will seek the forms of entertainment that they missed during 2020. They will not want to spend nearly as much time at home watching TV.

As a result, consumers will feel less desire to upgrade as Roku produces new devices. Some experts also believe that Amazon’s global reach makes it more profitable than Roku.

Cathie Wood seems to have a different perspective. The moves that ARK Invest has made indicate that Roku will continue playing a critical role in its Innovation ETF.

Wood might believe that people do not break habits easily. Now that they have grown accustomed to streaming continue through Roku devices, they will continue to purchase upgrades as the technology evolves.

Why does Cathie Wood like Roku? Likely because she sees it as a highly competitive company in an industry that still has plenty of room for growth.

Cathie Wood ROKU Price Target

ARK Invest hasn’t disclosed its inside analytics. Based on the firm’s aggressive buying, though, it seems possible that Cathie Wood sees a potential Roku price target above $450.

The stock has stumbled slightly, but that doesn’t mean it cannot recover quickly.

Whether Cathie Wood changes her price target for Roku probably depends on its ability to form an agreement with Alphabet (more on that situation below).

Is Cathie Wood Selling Roku?

Currently, Cathie Wood continues to buy Roku shares. That could change depending on negotiations between Roku and some streaming services, especially YouTube TV.

In late April, Roku sent an email to some users, asking them to contact Alphabet—the parent company of Google and YouTube—and encourage them to reach an agreement with Roku.

Losing YouTube as a streaming service would hurt Roku tremendously. YouTube has more than 2 billion global users.

Obviously, not all of them rely on Roku devices to stream content. Most people access YouTube via internet browsers. Still, cutting YouTube access off from Roku would almost certainly influence potential buyers to choose other streaming devices.

Why spend money on Roku when you cannot use it to watch some of your favorite content producers and social media influencers?

If that happens, Roku’s offerings could start to look almost as outdated as traditional cable services. If sales fall, Roku will also lose revenue that it generates through advertising. One bad deal with Alphabet could put Roku in a difficult position.

It seems likely that Cathie Wood would sell Roku shares if the company cannot finalize a deal with Alphabet. Doing so would probably push Roku’s value down. It would also create an opportunity for ARK Invest to buy more shares at a lower price.

Assuming that Roku eventually finds a way to work with Alphabet and other major content streamers, ARK Invest could buy the shares at a low price and wait for them to mature.

How High Could Roku Go?

Some investors believe that Roku shares could exceed $550. That would mean anyone who purchased shares before 2019 would more than quadruple their money. Even late investors purchasing the stock now would make more than $200 per share.

Of course, no one knows how high Roku will actually climb. If it can retain investors’ trust, shares could continue climbing.

After all, Tesla shares exceeded $700 despite public embarrassments and weak excuses regarding traffic accidents that might involve self-driving features.

Why Does Cathie Wood Like Roku: Conclusion

Cathie Wood likes Roku because it’s a leading disruptor in the entertainment industry. It’s exactly the kind of company that she wanted AllianceBernstein to invest in last decade. The company has wide-reaching brand recognition, continues to produce innovative hardware, and keeps finding new ways to generate revenue.

Cathie Wood and ARK Invest will have to make a critical decision regarding Roku during the second quarter of 2021. Whether she decides to buy more shares or start selling will depend on Roku’s ability to close negotiations with considerably larger companies.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.