In the world of investing, few names carry as much weight as Catherine Wood (Trades, Portfolio). Her ability to identify and capitalize on disruptive innovation has made her a famous figure on Wall Street.
In this analysis, I will explore her recent bets on Palantir Technologies Inc. (PLTR, Financial) and Adyen NV (ADYEY, Financial). These companies may seem worlds apart, but they share a common thread in their potential to reshape traditional industries.
Palantir's data analytics and artificial intelligence capabilities are poised to revolutionize sectors from health care to defense, while Adyen's payment platform is at the forefront of changing how people conduct transactions.
Palantir Technologies: AI leader with data-driven disruption
At the heart of Wood's investment strategy is seeking out companies that are pioneering technologies capable of revolutionizing traditional industries. Palantir Technologies fits this criteria exceptionally well. The company specializes in data analytics, AI and machine learning, and its latest product, the AI Platform, is a testament to its focus on innovation.
The platform leverages large language models and AI to empower enterprises with advanced data processing and analytical capabilities. This technology can potentially disrupt industries across the board, from health care and finance to logistics and defense, fundamentally changing how organizations make data-driven decisions.
Profitability and revenue growth
Apart from innovation, Wood emphasizes investing in companies with a clear and sustainable path to profitability. Palantir Technologies has unequivocally demonstrated this ability by achieving three consecutive quarters of GAAP profitability.
In its most recent quarter, the company reported $28 million in net income and $10 million in operating income, a compelling indicator of its financial strength. Palantir's consistent profitability, even as it continues to invest in cutting-edge technology, is a strong point in its favor.
Another crucial aspect of Wood's investment strategy is a strong revenue growth trajectory. Palantir has been delivering on this front as well. In the second quarter, the company reported impressive revenue growth of 13% year over year.
When excluding the impact of revenue from strategic commercial contracts, Palantir's revenue still grew by a substantial 16% year over year. This robust revenue growth illustrates its ability to expand its customer base and deliver value across various industries.
Expanding customer base
Further, Wood often seeks out companies with diverse and expanding customer bases. Palantir has been successful in this regard, with its customer count surging by 38% (commercial customer count up 35%) to reach 421 customers. This diversity mitigates the company's reliance on a single sector and highlights its capacity to cater to a wide range of industry needs.
A diverse customer base aligns closely with Wood's investment strategy as it reduces business risk and provides opportunities for revenue expansion. Palantir Technologies' growth in the U.S. commercial sector, which experienced a 20% increase, indicates its ability to expand its market presence. Palantir's success in this sector is a positive sign for potential investors.
Government contracts
Government contracts also often provide stability and long-term revenue streams. Palantir Technologies has secured contracts with U.S. government entities and international governments, including the U.K. It may also serve as a key fundamental for Wood's actions.
Source: Second-quarter business update
Adyen: A payment platform with potential
Adyen (ADYEY, Financial) is a payment platform that caters to a diverse clientele, including small and medium-sized businesses and online retailers.
The company's operations encompass facilitating transactions across various industries, making it a crucial player in the payment ecosystem. Again, Wood's investment strategy often gravitates toward companies operating in sectors poised for innovation and disruption. Adyen's role in shaping the future of payments aligns with this philosophy.
Strategic focus and seamless shopper journeys
Adyen's strategic focus on growth areas is key to aligning with Wood's investment approach. The company recognizes the increasing importance of platforms in the business landscape. Many SMBs are transitioning to platform-based models, and Adyen actively invests in this segment. The company's focus on this growth area is reflected in its product development efforts and the traction it gains.
The company also excels at creating seamless shopper journeys by merging in-store and online experiences. Unified commerce is a thriving segment where Adyen witnesses robust growth. This aligns with Wood's preference for companies that innovate and adapt to evolving consumer behaviors.
Online growth and investment strategy
Although Adyen originated as an online payment provider, it acknowledges that online growth has faced competitive pressures in North America due to factors like a higher interest rate environment.
However, Adyen's online segment is still growing, albeit slightly slower than anticipated. The company's strategy involves continued investment in product enhancement, believing that the total cost of ownership remains a critical factor in the choice of payment partners.
Fundamentally, the company's investment strategy is two-fold. First, Adyen is actively expanding its team to capitalize on long-term opportunities. It hired approximately 550 people in the past 18 months, focusing significantly on tech talent. This hiring spree aligns with Wood's emphasis on talent acquisition to drive innovation and growth.
Second, Adyen's focus on enhancing its product offerings aligns with Wood's investment philosophy of investing in companies that prioritize research and development. It aims to maintain a competitive edge by continually improving its offerings.
Performance and growth
Regarding performance, Adyen's processed volumes have experienced significant growth, with a 23% increase. It indicates the increasing transaction activity on the Adyen platform, a positive sign of its growing market presence.
Adyen reported 21% growth in net revenue during the first half of the year. This robust top-line growth is a favorable indicator of the company's financial health with an impressive Ebitda margin of 43%.
However, the Ebitda margin is down from 59% in the first half of 2022. Specifically, Adyen capitalized on rising interest rates, increasing interest income. This factor positively impacted the company's net income, demonstrating its potential during the Federal Reserve's "higher for longer" stance in the medium term. It may also be a key consideration for Wood to intensify ARK Innovation ETF's (ARKK, Financial) long-term position in the stock.
Source: First-half 2023 shareholder letter
Taking advantage of market lows with strategic long positions
Wood's ARK Innovation exchange-traded fund accumulated considerable positions in Palantir Technologies and Adyen in September. They represent 0.54% and 1.08% of the fund's combined value.
Notably, the current long trades were executed near the September bottom. The average price is nearly $14 for Palantir Technologies and $7 for Adyen. The fundamentals of both companies are strong; these trades indicate Wood is taking advantage of negative monthly price returns (through dollar averaging) on both stocks.
Data Sources: tradingview.com and arkinvestdailytrades.com
Takeaway
In conclusion, Wood's recent strategic moves are emblematic of her focus on disruptive innovation and sustained growth. Her growing interest in Palantir Technologies and Adyen underscores her knack for identifying companies poised to reshape traditional industries.
Technically, her strategic positions in both Palantir Technologies and Adyen at monthly lows illustrate her intelligent approach to capitalizing on market opportunities. As these companies continue to innovate and expand, they are compelling additions to her portfolio.
