Adhering to the Gardner-Kretzmann Continuum that suggests individual investors hold a diverse portfolio, I currently have 36 core holdings in my retirement account. While I own many more starter-sized positions of other stocks, I concentrate the majority of my monthly dollar-cost averaging (DCA) buys on these 36 holdings.
Despite the overall positive investment choices, the two worst-performing stocks in my portfolio at the halfway mark of 2024 are fintech giant SoFi Technologies and streaming service provider Roku, both staggering between 36% and 38%. However, I refuse to succumb to panic and sell off my shares.
What drives this decision?
Well, the fear of missing out (FOMO) on exponential growth in the future seems a potent reason. Historical examples abound – Nvidia’s stagnant decade in the early 2000s, Amazon’s stumble with the Fire phone, and Netflix’s Qwikster debacle before their subsequent multibagger evolution. Therefore, I choose to halt my DCA purchases and adopt a wait-and-see approach, letting the market unfold over the long term.
Amidst this turmoil, I remain resolute in my conviction to not relinquish my stakes in SoFi and Roku. Exploring the reasons behind my steadfastness reveals intriguing insights and potential opportunities in the face of adversity.
SoFi Technologies: Weathering the Storm
The diversified fintech SoFi has seen its shares plummet by approximately 35% in 2024. Despite this, the company outperformed expectations across both revenue and profits in the latest quarter. With a 26% revenue surge in Q1 2024, SoFi is demonstrating resilience and expanding its financial repertoire.
The burgeoning financial services arm displayed an impressive 86% sales growth, driven by the popularity of SoFi’s Money accounts offering an attractive 4.6% interest rate. This allure resulted in a $3 billion uptick in deposits, bolstering the company’s total to over $21 billion. These deposits serve as vital long-term assets, furnishing a reliable stream (90% derives from recurring direct deposits) of lower-cost funding for its lending division.
Meanwhile, the technology platform segment, positioned as the “AWS of fintech” by SoFi’s management, experienced a 21% revenue boost as it continued to court major banks across North and South America. Despite reservations from the market due to management’s cautious Q2 outlook, SoFi’s net profit margin shows a positive trajectory, boding well for its future. Predictions of earnings-per-share growth between $0.55 and $0.80 by 2026 alongside CEO Anthony Noto’s continued stock purchases validate SoFi’s potential, underscoring the rationale for maintaining my position.
Continuing to Scroll for More Information on Roku…
Roku: The Redemption Narrative
The decline in Roku’s share price persists unabated in 2024, dropping by a daunting 38% thus far. Descending to a level 88% lower than its peak, Roku now trades with a price-to-sales ratio of a mere 2.2, near its historical low of 1.7.
This substantial decline in both price and valuation lays the groundwork for a compelling turnaround saga. The increase in streaming households by 14% to 84 million and streaming hours by 23% to 31 billion during Q1 2024 makes a compelling case for Roku’s current value.
Moreover, Roku Channel has ascended to become the third-largest streaming app on its platform, attracting approximately 120 million viewers daily to the Roku interface.
The Dynamic Duo: Roku and The Trade Desk Transforming TV Advertising Landscape
Steering into a new era of connected TV (CTV) advertising, Roku finds itself nestling comfortably into a partnership with industry juggernaut, The Trade Desk. This symbiotic relationship sends ripples of excitement through Roku’s revenue streams, as it gears up to leverage The Trade Desk’s advertising prowess and extensive client base in the CTV realm. By marrying The Trade Desk’s advertising solutions with Roku’s extensive customer data, advertisers are now equipped to launch highly targeted marketing campaigns, ensuring maximum ROI on their ad spend.
The Ascendancy of Streaming Services and the Promise of Expanding Growth
The landscape of television consumption is rapidly evolving, with streaming services claiming 60% of total hours watched while only securing 30% of ad expenditures. This glaring discrepancy unveils a vast runway for growth, setting the stage for the Roku-The Trade Desk partnership to continue yielding substantial dividends in the days ahead.
Yet, amidst this whirlwind of positive developments, caution flags are hoisted. Despite the significant surge in free cash flow (FCF) over the past year, propelled by the strategic financial leadership of Chief Financial Officer Dan Jedda, lingering concerns arise over Roku’s stock-based compensation (SBC) practices. An intensive analysis reveals an adjusted 1.6% FCF margin post-SBC – a modest improvement from the negative FCF in 2022 but one that impels prudence.
A Tale of Patience and Strategic Restraint
However, as the tides of ad spend shift favorably towards CTV, bolstering Roku’s position, and with the powerhouse collaboration with The Trade Desk in full swing, the idea of divesting seems preposterous. With Roku constituting a robust 2% stake in my retirement portfolio, patience emerges as a virtue. The prevailing long-term megatrends, aligning in Roku’s favor, warrant a steadfast demeanor, affording time for the seeds of growth to germinate and flourish.
Unraveling SoFi Technologies Investment Conundrum
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