ROKU

Cathie Wood Just Sold Roku -- and Bought This Artificial Intelligence (AI) and Bitcoin Growth Stock

Ark Invest, which is led by CEO Cathie Wood, has been making some interesting moves on the heels of recent earnings reports. While the firm opted to reduce holdings in streaming technologies specialist Roku (NASDAQ: ROKU) on Monday, it increased holdings in Block (NYSE: SQ).

Notably, both Roku and Block delivered significant beats and encouraging guidance with their recent third-quarter releases. Why is Wood selling one and buying the other?

Wood sells Roku after an encouraging Q3 report

Roku published its Q3 results on Nov. 1 and posted overall results and guidance that crushed the market's expectations despite recording earnings that fell short of Wall Street's target. The streaming company recorded a loss per share of $2.32 on sales of $912 million, while the average analyst estimate had called for a per-share loss of $1.93 on revenue of $855.66 million.

Even though the loss in the period was much wider than anticipated, sales blew by Wall Street's forecast. Roku saw its number of active accounts increase 16% year over year to reach $65.4 million, and total streaming hours on the platform jumped 22% to hit 21.9 billion. Strong engagement growth more than offset a 7% decline in average revenue per user and allowed the company to grow sales by roughly 20% compared to the prior-year period.

It looks like strong momentum will continue in the near term. For the current quarter, Roku management is guiding for sales of $955 million -- a target that came in significantly ahead of the average analyst estimate's previous call for sales of roughly $951 million. The company also expects to post a gross profit of approximately $405 million and non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) of $10 million.

All in all, it was a great quarterly update for the streaming specialist. The chart below tracks Roku's stock performance following its recent earnings report.

ROKU Chart

ROKU data by YCharts.

As the chart above shows, Roku stock climbed roughly 40% on the heels of its Q3 report. In turn, Ark opted to sell 171,268 shares of the stock from its Ark Innovation ETF.

Should investors sell Roku and buy Block?

The day after Roku's report, Block delivered its own Q3 beats. The company recorded a loss per share of $0.05 on revenue of $5.62 billion, clearing the average analyst estimate's call for a per-share loss of $0.11 per share on revenue of $5.43 billion.

Block also laid out plans for big growth initiatives in artificial intelligence while also emphasizing that it would take a very cost-conscious approach to building the overall business.

By 2026, the company expects to be posting mid-teens gross profit growth and a mid-20% adjusted operating income margin -- a forecast that will have the business clearing a sustainability threshold prized by some analysts and investors.

As the chart below shows, the market clearly responded positively to the report.

SQ Chart

SQ data by YCharts.

While Block made significant gains in the wake of its earnings report, they weren't nearly as pronounced as Roku's. Following Block's Q3 report, Ark purchased 70,022 shares for the ARK Innovation ETF. The firm also purchased shares for its ARK Next Generation Internet ETF and ARK Fintech Innovation ETF.

Wood and the investment teams at Ark generally take an active approach to portfolio management across their ETFs. While Ark has long-term investment strategies for many of the stocks that it owns, the firm will sometimes sell holdings in its favorite stocks on the heels of big gains.

This frees up funds to be available for other investments and also ensures that individual stocks don't come to represent too large of a position in a fund. After Roku's explosive gains, it looks like Wood's company opted to reweight the fund to have less exposure to the streaming stock.

In addition to initiatives in AI-enhanced fintech services, Block stock is also a Bitcoin play -- and Wood remains highly bullish on the market-leading cryptocurrency. The company holds the crypto token, allows it to be purchased and held through its Cash App service, and has other initiatives aimed at promoting the digital asset's future.

But it has to be said that Wood also clearly remains bullish on Roku. The streaming specialist remains the single largest holding in the ARK Innovation ETF -- accounting for roughly 9.4% of the fund's total weight. It's also the second-largest holding in the ARK Next Generation Internet ETF and the 11th-largest position in the ARK Fintech Innovation ETF.

While Roku stock has soared roughly 105% year to date, Block is actually still down 19% across the year's trading. Wood's move suggests she currently sees more upside in the fintech specialist's stock, but there's no sign that she's giving up on Roku.

Investors who own both stocks can decide if they want to follow Wood's reweighting strategy, but it would be a mistake to think she's given up on Roku.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Block, and Roku. 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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