Last week’s strong bounce for growth stocks was a potent tonic for Cathie Wood’s investing style. Her largest exchange-traded fund has soared 17% over the last six trading days. She only added to one position on Thursday, and didn’t buy anything at all on Friday with the market shooting higher. She’s far more active early this week with some growth stocks pulling back after a monster run last week.
Twilio (TWLO 5.04%), Toast (TOST 2.05%), and Block (SQ 2.87%) are among the eight existing positions that she added to on Monday. Let’s take a closer look at her shopping bag on a busy day for Wood’s trading activity.
One of the most important companies behind the mobile revolution isn’t a household name at all. Most people don’t know about Twilio, but there’s a good chance they interact with the leading provider of in-app communications solutions on a daily basis. Twilio’s platform allows for real-time exchanges to take place within an app.
Is the driver with your food delivery nearby? Is the beach villa you wanted for your holiday escape still available? Can you reset the password to your streaming app without exiting the application? Twilio is the middleman that makes these real-time functions possible more often than not, a market leader with more than 304,000 active developer accounts on its platform.
Twilio reports its third-quarter results after Wednesday’s market close, and Wood apparently wants to increase her exposure to the stock ahead of the critical financial update. Analysts see revenue clocking in at $988 million, barely above the $983 million it posted a year earlier. It should be the ninth consecutive quarter of decelerating year-over-year growth. The bigger story should be the bottom line, where analysts see a profit of $0.35 a share reversing a loss in last year’s third quarter. If you think that’s promising, here’s a bonus: Twilio has exceeded Wall Street earnings targets by at least 80% in each of the past three quarters.
The stock rallied after its last quarterly update. The blowout adjusted profit helped, but even the 10% top-line gain was more than double Twilio’s own guidance earlier this year. Its dollar-based net expansion rate hit a record low of 103% — as existing accounts are spending just 3% more on the platform than they were in the prior 12 months — but that’s acceptable given Twilio’s usage-based model. There have been cyclical slowdowns in the industries in some of its largest customers, but that shouldn’t last long. If the market gets another beat on Wednesday afternoon and Twilio’s dollar-based net expansion rate starts moving back up the shares could rally. Wood is making a strategic call to buy into Twilio two days ahead of that report.
Wood will have to wait even less time for Toast to earn its Monday purchase. The leading solution for restaurants to process payments and fulfill other essential functions reports fresh financials after Tuesday’s market close. If you dine out regularly, you’re probably all too familiar with using a Toast reader to settle your tab.
Toast also moved sharply higher after its previous quarter, impressing the market with better-than-expected 45% revenue growth. It also signed a record 7,500 net new adds to its platform during the second quarter, making it a core tool across more than 93,000 locations.
Analysts see Toast’s quarterly loss narrowing substantially on a 42% surge in revenue in Tuesday afternoon’s report. The stock has fallen sharply since peaking two years ago after going public. Toast shares are also trading slightly lower in 2023, but a strong performance this week can help turn that around.
Let’s close with a stock that is not reporting quarterly results this week. The parent company of Square and Cash App delivered its financials late last week. It was an encouraging performance, with Block’s gross profit rising 21% and strength in its largest financial ecosystems.
This has been a challenging investing climate for fintech stocks. Block shares are trading 21% lower this year, off a blistering 83% since peaking in the summer of 2021. An emphasis on processing payments naturally requires a buoyant economy to thrive, so Block’s recovery is counting on the world skirting a recession in the near term. It’s clearly growing right now, and Wood adding to her stake after a strong quarter indicates that she thinks the bounce will continue into the busy transactions-happy holiday season.
Rick Munarriz has positions in Toast. The Motley Fool has positions in and recommends Block and Twilio. The Motley Fool recommends Toast. The Motley Fool has a disclosure policy.