After 2 years of big declines, Cathie Wood’s flagship ARK Innovation fund (ARKK) came roaring back in 2023. The ETF generated returns of 68%, putting the tech-focused NASDAQ’s 43% returns in the shade.
The “tech-focused” bit here is important because the Ark Invest CEO’s strategy is not only based on backing tech stocks, but usually the ones on the frontline of innovation – disruptors, if you will.
Looking ahead, Wood is optimistic and does not anticipate a recurrence of the bearish trends witnessed in the previous two years. In a recent interview with the Financial Times, she noted, “Honestly, I think what happened to us in 2021 and 2022 — a worse downturn than the Nasdaq during the tech and telecom bust — that doesn’t make any sense, because innovation is here and ready for prime time. You would expect me to say this, but I think we did pay our dues in 2021 and 2022, and now we’re on the other side of that.”
It should be noted that Wood has a history of going against the grain, often treading without fear where others on the Street would rather keep their distance. Recently she has been loading up on particular names – specifically, Palantir (NYSE:PLTR) and Robinhood (NASDAQ:HOOD) – but does the Street in this case agree with her picks?
This we can find out with some help from the TipRanks database, a platform that tracks and measures the performance of anyone giving financial advice online. Let’s dig in.
Palantir
Known as a big data player since its founding in 2003, Palantir has emerged as a key player in the field of big data analytics, serving various sectors such as government intelligence, finance, healthcare, and cybersecurity. The company’s Gotham product is geared towards governmental agencies and the defense and intelligence sectors, providing powerful tools for analyzing and visualizing complex datasets to uncover patterns, detect anomalies, and support decision-making processes. Additionally, Palantir Foundry, another key offering, targets commercial clients, offering a flexible platform for data integration, management, and analytics across diverse industries.
Palantir was a significant gainer last year, delivering returns of 167%, largely based on the promise of another platform. The company launched the AIP (Artificial Intelligence Platform), a tool that facilitates immediate, AI-guided decision-making. While critics have often criticized Palantir for being too reliant on government work, its introduction helped the commercial segment shine in its recent Q4 readout.
Overall revenue rose by 19.6% from the same period a year ago to $608.35 million, surpassing the Street’s expectations by $5.55 million. While Palantir’s government business has always claimed the bulk of the revenue haul, with AIP at the forefront, the commercial segment made significant headway. That division saw a 32% year-over-year revenue increase to $284 million, with U.S. commercial revenue rising impressively by 70% y/y to $131 million. On the other end of the scale, adj. EPS of $0.08 met Street expectations.
Meanwhile, Cathie Wood must be pleased with that performance. Through ARK Investment Management, she purchased 1,514,232 PLTR shares in Q4, increasing the firm’s stake by 17%. The total holdings now stand at 10,937,859 shares, which command a market value of more than $267 million.
Wood is evidently bullish, but that contrasts with RBC analyst Rishi Jaluria’s take. Digging into the details of the Q4 readout, Jaluria has raised concerns regarding certain finer points.
“On the one hand,” says the analyst, “US Commercial growth and profitability results/guidance outperformed consensus. On the other hand, overall Q4 revenue upside was limited (Commercial beat was boosted by SPAC-related revenue while Government missed consensus) and 2024 revenue guidance seems imprudent to us. All in all, while we acknowledge that Commercial exceeded expectations and offset Government weakness, we find it difficult to reconcile our concerns about the business model and sustainability of growth with shares trading at a premium multiple.”
The verdict? An Underperform (i.e., Sell) rating on PLTR, with a $5 price target, representing a steep 78% drop from current levels. (To watch Jaluria’s track record, click here)
Jaluria is a full PLTR bear but it’s not as if he’s on his own here. 4 others join him the naysayer’s camp, 2 remain positive, but the majority – 6, in total – stay on the fence, all culminating in a Hold consensus rating. The $18.55 average target suggests the shares are overvalued by 19%. (See Palantir stock forecast)
Robinhood Markets (HOOD)
If we’re talking about Cathie Wood, then it’s only natural to talk of disruptors. Enter Robinhood Markets, a firm doing just that to the financial industry. The company transformed the landscape of retail investing since its foundation in 2013 with a simple mission to “democratize finance for all.”
Robinhood’s commission-free trading and user-friendly mobile app have challenged traditional brokerage models and forced established firms to adapt to changing consumer preferences. The company’s emphasis on accessibility and simplicity has attracted millions of users, particularly younger investors who may have been previously underserved by traditional financial institutions. Alas, Robinhood has played a significant role in popularizing concepts like meme stocks and the gamification of investing.
During the peak of the pandemic, the company experienced a significant surge in the number of users joining its platform, but the comedown has been brutal, as nearly half of its active user base has diminished over time. This has seen the stock badly affected with the shares currently trading 80% below the all-time high reached in August 2021.
However, there are signs that the business is back on track. In the most recent print, for 4Q23, as interest revenue climbed by 41% to $236 million, total revenue rose by 24% to $471 million, easily beating the Street’s $457 million forecast. Net income hit $30 million, or $0.03 per share, marking a big turnaround from last year’s loss of $166 million ($0.19 per share) while the Street was factoring in a loss of $0.01 per share. For 2024, the company anticipates operating expenses will drop from $2.4 billion to the range between $1.85 billion and $1.95 billion.
As for Wood, she’s a strong supporter, with her firm, ARK Investment Management, acquiring 2,101,325 shares in Q4. This translates to a 7% increase in the firm’s holdings. Currently, the total stake is valued at ~$489.1 million, based on 34,936,204 shares.
Looking at the company’s prospects, Goldman Sachs analyst Will Nance has a nuanced take here. While he liked the recent set of results, given how the macro backdrop is shaping up, he sees some challenging times ahead.
“With the forward curve baking in rate cuts in the back half of the year and the company already pulling significant levers to reduce operating expenses, we see fewer self-help and macro-related tailwinds over the course of the year, with investors now required to underwrite higher activity levels as an offset to falling rates in order to maintain revenue momentum,” Nance explained. “So putting it all together, with shares up over the past 3 months… we believe the bar has been raised into an environment where the company will become more dependent on more volatile drivers of revenue growth (i.e. trading volumes).”
Accordingly, Nance remains on the sidelines with a Neutral rating and a $13 price target, implying the shares are overvalued by 5%. (To watch Nance’s track record, click here)
Most of Nance’s colleagues agree with that stance; based on a mix of 7 Holds, plus 3 Buys and Sells, each, the analyst consensus rates the shares a Hold. Going by the $13.58 average target, the stock will stay range-bound for the foreseeable future. (See HOOD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
