Ark Innovation ETF (NYSEARCA:ARKK), Cathie Wood’s flagship fund, plunged 67% in 2022 as continued rate hikes hammered growth stocks. As per Bloomberg, the fund still saw an inflow of $1.3 billion in 2022. Nonetheless, inflows were way below $4.6 billion and $9.6 billion in 2021 and 2020, respectively. While additional rate hikes might weigh on ARKK holdings in the near term, some of the stocks in the fund could be attractive long-term picks. We used TipRanks’ Stock Comparison Tool to compare Zoom Video (NASDAQ:ZM), Intellia Therapeutics (NASDAQ:NTLA), and Block (NYSE:SQ) to select the most attractive ARKK stock for 2023.
Zoom Video Communications (NASDAQ:ZM)
Once a pandemic darling, Zoom stock plunged 63% in 2022 as pandemic tailwinds faded following the reopening of the economy. The video conferencing platform is also facing increased competition, especially from Microsoft (MSFT) Teams.
While Zoom’s revenue growth has slowed down considerably, the company’s Enterprise business is delivering strong performance. In Q3 FY23 (ended October 31, 2022), overall revenue grew 5% to $1.1 billion, with Enterprise revenue rising 20% to $614 million. The number of Enterprise customers increased 14% from the prior-year quarter to about 209,300 in Q3. Moreover, the number of customers contributing more than $100,000 in revenue in the trailing 12 months increased 31% to 3,286.
Is Zoom Video a Good Stock?
Recently, Wedbush analyst Taz Koujalgi initiated coverage of Zoom Video stock with a Hold rating and a price target of $80. Koujalgi is concerned about the competitive backdrop due to pricing pressure in the Voice and Unified communications as a service (UCaaS) space, and the bundling of products by rivals, like Microsoft, with their broader portfolio.
The analyst is also worried about the company’s 2024 guidance missing the Street’s estimates. Overall, Koujalgi believes ZM stock’s risk/reward profile is balanced at the current valuation of 12-times 2025 Enterprise Value /free cash flow (EV/FCF).
Wall Street has a Hold consensus rating for Zoom Video stock based on seven Buys, 16 Holds, and two Sells. The average Zoom stock price target of $86.81 implies about 25% upside potential from current levels.
Intellia Therapeutics (NASDAQ:NTLA)
Intellia Therapeutics is a clinical-stage genome editing company focused on developing potentially curative therapies based on CRISPR-based technologies. Intellia stock plunged over 70% in 2022 as tough market conditions made investors avoid speculative biotech plays.
On January 5, 2023, the company announced its strategic priorities for 2023 to 2024, the most important being the initiation of global pivotal trials for its first two investigational “in vivo” CRISPR-based therapies – NTLA-2001 for transthyretin (ATTR) amyloidosis and NTLA-2002 for hereditary angioedema.
Is Intellia a Buy?
Following the recent update on strategic priorities, William Blair analyst Raju Prasad feels that clinical updates in 2023 and longer-term follow-up from the ongoing Phase I studies of NTLA-2001 and NTLA-2002 could be key catalysts for the company. Prasad believes that Intellia is currently a leader for “in vivo gene editing,” based on the data revealed till now about NTLA-2001. Blair reiterated a Buy rating for NTLA stock.
All in all, Wall Street has a Strong Buy consensus rating for NTLA stock, with 15 Buys and three Holds. At $102.11, the average NTLA stock price target implies 168% upside potential.
Block (NASDAQ:SQ)
Macro pressures, crypto turmoil, and fears of an economic downturn pulled down shares of fintech platform Block by 61% in 2022. Despite a challenging market, Block reported upbeat results for the third quarter of 2022, driven by strength across its Cash App (peer-to-peer solutions) and Square (comprises solutions for merchants) ecosystems.
Q3 revenue grew 17% to $4.52 billion, driven by 12% growth in Cash App revenue and a 27% rise in Square ecosystem’s revenue. Adjusted EPS jumped 68% to $0.42, fueled by a strong rise in gross profits of its two ecosystems. The company is reducing its expenses across several areas and driving further efficiency to improve profitability.
Block is strengthening its business by introducing new financial solutions in both its ecosystems and rapidly expanding its Square ecosystem in international markets. Furthermore, it sees strong prospects in the lucrative buy now, pay later space, thanks to its AfterPay acquisition.
Is Block a Buy or Sell?
Earlier this week, Baird analyst David Koning upgraded Block stock to a Buy from Hold as he feels that “sentiment can improve as growth should remain good in 2023 and margins ramp.” The analyst raised his price target for SQ stock to $78 from $62.
Koning highlighted certain long-term positives for Block, like Seller solutions winning market share despite moderating growth, Cash App’s rapidly growing financial network, different ecosystem from rivals, and the ongoing integration with AfterPay.
Overall, the Street has a Strong Buy consensus rating for Square stock based on 21 Buys, four Holds, and one Sell. The average SQ stock price prediction of $87 suggests 26.1% upside potential.
Conclusion
The three stocks discussed here feature among the top ten holdings of Cathie Wood’s ARK Innovation ETF. While Zoom Video is the top holding of ARKK ETF and constitutes 9.3% of the overall fund, analysts are sidelined on the stock. Wall Street is bullish about the long-term prospects of Block and Intellia, and sees higher upside potential in Intellia stock following a steep pullback last year.
