Returns as of 11/13/2021
Returns as of 11/13/2021
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Legendary investor Warren Buffett once gave the advice to be “fearful when others are greedy, and greedy when others are fearful.” That sentiment strikes at a curious aspect of human psychology: People tend to overreact to both good and bad news.
For instance, shares of Latch (NASDAQ:LTCH) have fallen 33% year-to-date due to supply chain headwinds, and shares of Roku (NASDAQ:ROKU) have dropped 27% due to slowing viewer engagement. But neither situation is that surprising, given the impact of the pandemic, and both situations should resolve eventually. In the meantime, investors should consider buying a few shares at a discount.
Image source: Getty Images
Latch is a smart lock company. Its software-as-a-service (SaaS) product, LatchOS, powers a variety of hardware devices, including door-mounted access controls, intercoms, and cameras. This ecosystem collectively modernizes the entry experience, making it possible for tenants to unlock doors, grant access to visitors, and control smart home devices with the Latch mobile app.
Likewise, Latch technology allows building staff to control access permissions remotely, a benefit that could cut expenses by $100 to $300 per apartment per year, according to management. Latch also believes that smart locks create a premium experience, which could also boost revenue by $200 to $500 per apartment per year.
One of the great things about this business is its stickiness. Once Latch’s hardware is installed, it would be very inconvenient to rip it out and switch vendors. More importantly, the company’s comprehensive smart-building platform — including hardware, software, and services — sets it apart in a highly fragmented industry. To that end, Latch has never lost a single customer.
In the third quarter ended Sept. 30, Latch reported revenue of $11.2 million, up 120% year over year. And total bookings hit $96 million, up 181%, implying strong future sales growth. On a less optimistic note, its net loss widened to $34 million — but given Latch’s perfect customer retention, I believe the company will reach profitability as its business scales.
On that note, Latch has plenty of room to grow. Cumulative home unit bookings comprised less than 1% of all U.S. apartments at the end of 2020. But more than 10% of all newly constructed apartments in the country now feature Latch smart locks, and Latch recently expanded its platform into commercial office spaces.
That’s why this stock looks like a smart long-term investment. And with its share price sitting well below its all-time high due to near-term headwinds, now is a good time to buy.
Image source: Getty Images.
Roku is the world’s most popular smart TV operating system. Its platform connects viewers with streaming content, both paid and ad-supported, allowing people to access and manage all of their services from a single location. To that end, Roku remains the only operating system purpose-built for TV. Rivals like Amazon Fire TV rely on a modified version of Android, a mobile operating system. Generally speaking, Roku’s approach creates a smoother viewing experience for users.
To reinforce that advantage, Roku is investing aggressively in original content. The company has released 53 Roku Originals so far this year, and the results have been encouraging. Roku saw record streaming following the initial launch of original content in May, and streaming hours rose 21% year over year to 18 billion in the third quarter, even as traditional TV viewing time fell 19% among viewers 18 to 49 years old. Roku also announced its first original feature-length film: Zoey’s Extraordinary Christmas.
So while growth certainly slowed compared to last year, Roku is still moving in the right direction, and traditional TV is still becoming less relevant to advertisers. As a result, Roku’s financial performance has been impressive. Active accounts rose 23% in the third quarter, reaching 56.4 million, and monetized video ad impressions grew even faster, nearly doubling compared to the prior year. That drove revenue of $680 million, up 51%. And Roku posted a GAAP profit of $0.48 per diluted share, up 433%.
Going forward, the ride may be bumpy, but Roku remains well positioned to create value for shareholders. The Roku brand name has become synonymous with a high-quality viewer experience (at a reasonable price). And its original content strategy should accelerate the flywheel that drives its business, bringing more viewers (and therefore more advertisers) to the platform. And with the share price well-below its high, now is good time to buy this stock.
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Stock Advisor launched in February of 2002. Returns as of 11/13/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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