Read us and find out Cathie Wood ARKK´s Top 5 holdings price targets
The top 5 of Cathie Wood ARKK´s portfolio is comprised of : TESLA ; TELADOC HEALTH ; UNITY SOFTWARE ; ROKU ; COINBASE GLOBAL.
TESLA
Tesla designs, develops, manufactures, and sells high-performance fully electric vehicles and components, as well as a full suite of renewable energy products.
We estimate TSLA’s revenue will rise by about 59% in 2021 and 37% in 2022, after an increase of 28% in 2020. The primary catalysts of the anticipated volume increase are planned capacity additions and the ongoing ramp-up of its China factory. Much of Tesla’s capacity has shifted from producing the Model 3 to producing the Model Y, which debuted in March 2020. We see TSLA’s vehicle sales rising 62% in 2021 after a 36% jump in 2020. Capex will likely increase as TSLA continues to expand with the completion of new factories in Germany and Texas, both of which are targeting first production and sales in late 2021. We think TSLA will then build a plant in India. TSLA’s 2020 vehicle sales of 499,647 units fell just short of its target of 500K units, but volume was up from 367,656 units sold in 2019. Deliveries will likely ramp when the Germany and Texas factories are complete, and after the Semi, Cybertruck, and Roadster become available.
Our Buy opinion reflects our view that TSLA’s risk/reward is balanced at current levels after a meteoric 2020 run-up for the shares in which it rose 743%. TSLA was added to the S&P 500 Index on December 21, 2020, making it the largest company ever added to the index. At its September 2020 Battery Day, TSLA outlined a plan to reduce battery costs on a $/kWh basis by 56% and boost vehicle range by 54%, which we think will help widen the competitive gap between Tesla vehicles and other EVs. TSLA is currently constructing new factories in Germany and Texas, both of which it expects to be completed in late 2021. Risks to our rating and target include fasterthan-expected sales growth, greater-thanexpected cost efficiencies, and potential capital raises, as well as regulatory risks related to autopilot.
Our 12-month price target of $1000 is based on EV / Sales 14.7x our 2022 estimate . We expect TSLA to trade at a significant premium to other automakers given its growth prospects. We expect an acceleration of profits as TSLA ramps production and aims to deliver on its goal of increasing annual auto volumes by 40x over the next decade (from ~500K units in 2020 to 20M by 2030). This price target gives us an implied return of +47%.
TELADOC
Teladoc Health, Inc. is a New York-based telehealth company that enables digital delivery of healthcare. The company was founded in 2002.
We anticipate 2021 sales will grow 84% to $2 billion (the low 40%-range, excluding the Livongo acquisition), and 2022 growth of 29%, following accelerated 98% growth in FY 20. TDOC’s recent revenue growth was driven by the Covid-19 pandemic. TDOC’s total visits grew 156% in 2020 to 10.6 million due to temporary closures of medical offices, as well as a shift in consumer preference to avoid exposure to Covid-19. We forecast 13.7 million total visits in 2021, and anticipate growth in platformenabled sessions from TDOC’s licensed software platform as well. We project EBITDA margins of 13% in FY 21 and 15% in FY 22, reflecting an inflection point following negative margins since its initial public offering in 2015. We expect margin expansion driven by cost and revenue synergies (crosssales) from the Livongo and InTouch acquisitions, higher visit volumes, and improvement in client retention. Long-term, we think getting to an annual EBITDA margin of 25% is plausible as the company gains economies of scale. We forecast TDOC will generate $80 million of free cash flow in 2021 and $280 million in 2022, compared with negative $80 million in 2020. We expect cash from operations to grow faster than capex
We believe shares of TDOC are trading below fair value. We have a positive outlook for the telehealth industry, which gained exposure and acceptance during the pandemic. We anticipate exponential growth for the industry over the next several years, replacing part of the current in-person health care market due to convenience and lower costs for all parties. Medicare & Medicaid, as well as many commercial payers, relaxed restrictions around telehealth reimbursement after the pandemic hit, expanding the market well beyond rural patients. While we expect increased competition from electronic medical records providers (e.g., Epic and Twilio), we believe more of TDOC’s revenue comes from health plans than peers, and less from hospital and provider systems. Downside risks to our target price and recommendation include significant customer departures, poor commercial execution, unfavorable changes to reimbursements, and the emergence of competitive threats.
Our 12-month target price of $175 reflects an P/Sales multiple of 8.7x our FY 22 revenue estimate of $2.0 billion, a premium to peers. We view telehealth as an expanding market with the ability to reduce costs across the health care system.
UNITY
Unity is a leading software platform for creating and operating interactive, real-time 3D content. The platform provides a comprehensive set of solutions to create, run and monetize 2D and 3D content for mobile phones, tablets, PCs, consoles, and AR/VR.
Results were ahead of our/cons. estimates driven by outperformance in Operate offset by Create, which was below our expectations. As we had observed data points that suggested UA spend on other channels were moving into Unity and other networks as advertisers searched for ROAS, the surprise was in the magnitude of the beat. Hence, Unity is emerging as a net beneficiary of IDFA for now and appears to be gaining market share. Unity continues to add new customers in non-gaming verticals – citing multiple wins in the automotive, consumer, and aerospace and defense industries. Concurrently with the earnings report, Unity announced the acquisition of Parsec, a remote desktop and streaming operator that allows gaming and creative professionals to work from anywhere, with anticipated 3Q21 close. As 2021 revenue guidance was revised upwards, we increase our near term estimates assuming a greater contribution from Operate. Our target price is based on the following: (1) Platform Value and Scarcity Value, (2) Engaged Global Community, (3) Leading and Defensible Position in a Growing Gaming Market, and (4) Runway in Non-Gaming Verticals.
Our $170 target price is based on our DCF analysis that assumes a 29% 5-year revenue CAGR before trending towards 25% in FY33E and margins improving from (7%) in FY20 to 35% in the terminal year. Our DCF uses a 3.5% terminal growth rate and a WACC of 8%.
ROKU
Roku owns & operates a major streaming video platform in the U.S., providing entertainment content to consumers and catering to the needs of publishers/advertisers.
We project consolidated revenue of $2.82 billion in 2021, an increase of about 59% mainly on digital advertising growth at the platform segment with strong growth in active accounts (up 28% Y/Y to reach 55.1M in Q2). We see further acceleration in the monetization of video ad impressions, fueled by continued strong growth in streaming hours (up 19% Y/Y in Q2) and higher average revenue per user, ARPU (up 46%). Also, we see continued strength in the unit sales of streaming players versus lower average selling prices. We project revenue growth of about 36% in 2022. We see gross margins of 49.8% in 2021 (noting ROKU’s target for high-40s) and 51.4% in 2022 -- versus 43.1% in 2020 -- with increased operating leverage and a favorable mix shift to higher-margin platform revenue, partly offset by higher cost of revenue (including programming/ content licensing). With higher sales/marketing expenses and supply chain/logistics costs, we see adjusted EBITDA margins of 13.8% in 2021 and 12.9% in 2022 (versus 8.4% in 2020).
Our opinion partly reflects what we view as fair risk/reward on the valuation on the shares, spiking in recent years through the Covid-19 lockdown. With growing scale economies and accelerating consumer engagement, ROKU seems well-positioned for an ongoing secular shift from traditional pay TV to streaming TV. We think those dynamics were further highlighted in the somewhat mixed Q2 results with continued strong monetization of its video ad impressions. This trend should help to sustain an inflection to improved profitability and return on invested capital (ROIC) in the years ahead. Risks to our recommendation and target price include intensifying competition from streaming platforms, pay-TV, and other in-home/out-ofhome entertainment options (on easing lockdown restrictions); adverse changes in consumer tastes or preferences; dilutive acquisitions; decline in consumer spending; and governance concerns on dual-class shares.
Our 12-month target price is $450, on EV/sales of 15.4x our 2022 estimate, a steep premium versus peers given potential upside on monetization opportunities. ROKU recently had tax assets comprised of about $1.7 billion in aggregate net operating losses (NOL) carryforwards.
COINBASE
Coinbase operates a platform and exchange that allows retail and institutional customers to buy, sell, store, and send cryptoassets.
We see revenue growing by approximately 500% Y/Y in 2021 given Q1 2021 results showed 843% Y/Y and Q2 up 152%. We then assume revenue moderates to 15% growth for the next four years and then declines to 10%. COIN’s revenue is highly leveraged to the price of bitcoin and other cryptocurrencies as well as the volatility and subsequent trading volumes on its platform. We note the price of bitcoin has so far moved in cycles every four years, concurrent with its preprogrammed monetary schedule where its inflation rate is cut in half every four years. Based on these past cycles, we think we may still currently be in the middle of the bull market cycle. We see operating margins compressing drastically over the next few years as COIN intends to pursue a high-growth strategy and ramp up spending in almost all areas, particularly sales and marketing, and development of new products. We also expect acquisitions as it builds out the platform and capabilities. We think operating margins could stabilize in the long-run at 35% if COIN is successful in diversifying its revenue to higher margin data and subscription services, which is still below the financial exchange peer average of 50%.
We concur that expectations for COIN are arguably high, but we rate shares as a Buy as we think COIN could exceed even high expectations given the growth potential for the cryptoeconomy. Our base case scenario implies COIN not only becomes one of the largest financial exchanges for crypto but that it is also successful in diversifying into other products and services, most notably those aimed at institutional investors, an area it has more aggressively pursued over the past two years. Risks to our recommendation and target price include COIN’s high degree of leverage to the price of cryptoassets, especially given the extreme volatility that has been observed in the past (bitcoin has experienced regular drawdowns of over 30%), a highly evolving regulatory landscape, and any kind of cybersecurity even that could result in lost customer cryptocurrencies.
Our 12-month target price of $375 ($80 billion market cap) is based on our DCF model that assumes revenue grows at a CAGR of 30% over the next decade (jump-started by 500% revenue growth this year but immediately moderating to 15% and then 10% growth) with operating margins ramping and stabilizing to 35%, a 6.5% WACC and a 3% terminal growth rate.
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