3 disruptors I love right now

STocks leading the way in disruptive industries have historically produced outsized results. The long-term returns of stocks such as low-cost retailers walmart and streaming giant Netflix show the powerful force that is bringing change and improving people’s lives.

However, taking advantage of these opportunities often means finding businesses early. Although no one can guarantee the future, Roku (NASDAQ: ROKU) and Reached (NASDAQ: UPST) hold such potential, and investors may find a more diverse approach to disruption in the ARK Innovation ETF (NYSEMKT: ARKK).

Image source: Getty Images.


Roku is best known for allowing streaming through devices or TVs that incorporate its technology. But these platforms mainly offer support for Roku. Rather, the company’s investment case hinges on TV’s revenue engine: advertising.

The company is leveraging viewer interest to lure advertisers to its platform, playing a powerful game as customers shift away from broadcast and cable TV and shift to the streaming side instead. By the end of 2021, Roku’s ecosystem attracted 60 million users, making it the leading streaming platform in North America according to streaming analytics website Conviva.

Number of monthly active Roku users by quarter.

Image source: Roku

Roku’s business model generated nearly $2.8 billion in revenue in 2021, 55% more than in 2020. It also gave Roku an annual profit of $242 million in 2021, a huge improvement compared to the $18 million lost the previous year.

Despite the increase in revenue, investors have written down on the stock after management forecast revenue growth of 25% in the first quarter, a significant slowdown from 2021 levels. supply constraints and intense competition outside of North America have rattled investors. The stock fell nearly 80% after hitting an all-time high last summer.

Still, Roku’s price-to-earnings (P/E) ratio sits just below 6, which is near a multi-year low for the company. For comparison, Roku was trading at a high of 33 at the start of 2021. As the transition to streaming continues and Roku spearheads the future of television, Roku shareholders will benefit. most likely.

2. Reached

Upstart wants to disrupt the long-standing measure of solvency: the FICO (NYSE: FICO) score. Its AI-powered tool analyzes more metrics, allowing Upstart to find lending opportunities that the FICO score might miss. Since Upstart simply assesses loans for a fee, it does not directly take on loan risk.

The company started out as a personal loan appraiser. However, Upstart has more recently entered the much larger auto loan market and plans to expand into mortgage appraisals and small business loans soon.

Despite this potential, Upstart carries considerable risks. It has never faced a financial crisis or a rate hike. Moreover, more than half of its loans come from a single institution, Cross River Bank. If Cross River Bank were to lose Upstart, it could devastate the stock.

Yet the figures show no dissatisfaction. For 2021, revenue was $849 million, and the 264% year-over-year growth rate indicates that its popularity has increased significantly. Adjusted net income was $224 million, a massive increase from the $17.5 million net income reported in 2020. Operating expense growth maintained at 219% enabled an increase revenues.

Nonetheless, the sell-off in tech stocks and the subsequent volatility in the sector spooked investors. Because of this, Upstart stock has fallen about 80% from its peak. However, its P/E ratio fell below 60, a record discount given its triple-digit revenue growth.

The stock is not for risky showers. But if it can pursue growth and withstand crises, investors could reap outsized returns if they buy now.

3. ARK Innovation ETF

Those who want to invest in emerging industries without taking on the risks of individual stocks might consider outsourcing the work to a well-known cheerleader of disruptive innovation, Cathie Wood.

The CEO of ARK Funds has built a portfolio that leverages disruptive innovation and is diversified across many sectors. Wood’s ARK Innovation ETF is invested in 36 “disruptive innovator” stocks; seven of these stocks each represent more than 5% of the fund’s holdings. You’re here (NASDAQ: TSLA), Teladoc Health (NYSE: TDOC), Focus on video communications (NASDAQ: ZM)and Roku are its four largest holdings.

Wood also beat Wall Street with a few bold calls. In 2018, when Tesla was trading at $69 per split-adjusted share, it told CNBC it would hit $800. These days it sits at around $1,000 per share. Such predictions benefited Wood’s portfolio. Since inception of the ARK Innovation ETF in 2014, the fund has generated a total return of approximately 215%, well above the S&P500150% gain over the same period. These impressive returns take into account a 55% drop from the ARK Innovation ETF’s 52-week high, mainly due to the massive sell-off in technology stocks that has occurred over the past few months.

This decline has led to criticism of Wood’s approach. This is because the portfolio is close to an all-in bet on tech growth stocks, so this portfolio is likely to suffer heavy losses if it gets it wrong. However, given the fund’s track record and the major upside potential of most of ARKK’s holdings, the drop could mean a reduced purchase price rather than the start of a multi-year decline.

10 stocks we like better than Roku
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Will Healy owns Roku and Upstart Holdings, Inc. The Motley Fool owns and endorses Netflix, Roku, Teladoc Health, Tesla, Upstart Holdings, Inc., and Zoom Video Communications. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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