When it comes to big ideas, investing guru Cathie Wood has more than a few. As the manager of the Ark Invest family of exchange traded funds (ETFs), Wood boldly predicts Bitcoin (BTC-USD) will be worth $1.5 million by 2030 and Tesla (NASDAQ:TSLA) stock will have a $2,000 per share price tag by 2027. So, Wood is not shy about looking to the future and guessing where the world will be. Her ETFs are representative of some of the most disruptive technologies available. From artificial intelligence (AI), robotics, and autonomous robotaxis to digital payments, electric vehicles, and blockchain technology, they are all part of what Wood says are “technological breakthroughs evolving today and creating the potential for super-exponential growth tomorrow.” So, when she took notice of several digital leisure stocks, so did we.
Earlier this year she released her Big Ideas 2023 report that’s full of dramatic predictions of life-altering changes to come. One of the boldest forecasts concerns the growth of the digital consumer. That includes spending on online goods and services, non-fungible tokens (NFTs), online sports betting, video game software and services, and streaming video and audio. Expenditures in these fields will grow from not-so-humble beginnings of $6.6 trillion in 2022 to a massive $22.5 trillion opportunity by 2030.
Because the investment possibilities span numerous industries, here are seven of the best digital leisure stocks to buy to capitalize on this immense growth trajectory.
Roku (ROKU)
Connected TV (CTV) is seen as one of the defining growth markets for the digital consumer. Some 85% of all U.S. households have access to at least one CTV, but their ad market is just 23% of total TV ad spending. The Big Ideas report says “CTV is at an inflection point and will take share from both linear TV and other digital ad budgets.”
Roku (NASDAQ:ROKU) seems uniquely positioned to benefit from the shift. The number of active Roku accounts grew 16% in the second quarter from last year to 73.5 million on the strength of its Roku TV licensing program. Roku;s operating system continues to be the top-selling TV OS in the U.S., and Roku’s market share is larger than the next three largest TV OSs combined.
Wood also puts her money where her mouth is. Roku is the third largest holding in her Ark Innovation ETF (NYSE:ARKK) behind Tesla and Coinbase Global (NASDAQ:COIN) with a current market value of over $535 million.
Wood has a $605 per share price target on Roku stock. That’s a near ten-fold increase needed by 2026 from its current levels. That doesn’t seem possible now, but longer term could be achievable. This stock easily earned its spot on our list of the best digital leisure stocks.
Microsoft (MSFT)
Wood says “the convergence of video games and social media should sustain gaming revenue growth.” Microsoft (NASDAQ:MSFT) is arguably best poised to capture the lion’s share of the money spent here with its acquisition of Activision Blizzard (NASDAQ:ATVI).
The tech giant is about to close its $69 billion takeover of the video game publisher after British regulators signed off on the transaction. That gives Microsoft access to some of the most important gaming titles on the market. Activision’s World of Warcraft remains the biggest massively multiplayer online (MMO) game with almost 121 million total players. In comparison, runner up Final Fantasy XIV Online has nearly 40 million. Call of Duty also continues to be a top game franchise with a fresh reboot of Modern Warfare II.
Because Microsoft agreed to sell the online streaming rights to Activision’s IP portfolio to the U.K.’s Ubisoft Entertainment (OTCMKTS:UBSFY), the path to approval was sealed.
Warren Buffett, however, dumped his Activision stake when it seemed like the deal wouldn’t be approved. While he bought shares mostly as an arbitrage play on the transaction, investors in Microsoft can still see the video game publisher take the stock to the next level. If you are looking for digital leisure stocks to buy, this is a great place to start.
Apple (AAPL)
You might be surprised to think of Apple (NASDAQ:AAPL) as another top gaming platform, but the tech leader happens to be the third largest player in the space by revenue. How can that be since it doesn’t produce any video games or software on its own? Because it takes a 30% cut of every single transaction made through the App Store, whether an app purchase or an in-game transaction. The commission drops to 15% after a year or if the developer earns less than $1 million in annual App Store sales.
Still, the $15 billion or so in annual revenue it rakes in makes it amongst the highest sales generators in gaming. Apple announced back in May the App Store had generated more than $1.1 trillion in 2022, with two-thirds of that coming from mobile games. Services like App Store are where Apple’s future growth will come from.
The tech stock is also developing its own alternate reality headset, called Apple Vision Pro , or “spatial computing,” as Apple refers to it. It will allow users to feel the physicality of digital objects.
Consider Apple stock as a backdoor way to get into gaming with a big tech boost to juice returns.
The Trade Desk (TTD)
Another play on the CTV market is The Trade Desk (NYSE:TTD). It is the premier software provider for advertisers targeting specific online audiences. It remains one of the best stocks in the business and is the largest independent demand-side platform. While this may not be the first on you think about when it comes to digital leisure stocks, hear us out on it.
The Trade Desk charges its customers a 20% commission for the privilege of buying advertising on its platform. It might appear audacious on its face, but it indicates just how good the company is at what it does. Clients obviously like the results they get because they continue to spend more money on the platform than they did previously. Second quarter revenue jumped 23% year over year with adjusted EBITDA margin increasing 200 basis points to 39%.
Ad buyers also returned in droves, allowing The Trade Desk to achieve a 95% customer retention rate. It’s a record it has maintained for over nine consecutive years.
The total addressable market for the advertising industry is moving rapidly toward $1 trillion. Notably, the privacy features Apple recently launched for iOS users that created a huge tumult in the online ad industry impose little to no impact on The Trade Desk’s business.
As Wood notes, digital advertising has a long runway of growth pushed higher by the CTV tailwind. Look for The Trade Desk to ride that wave for years to come.
Meta Platforms (META)
With four of the biggest social media apps to its name, Meta Platforms (NASDAQ:META) will also win the digital ad game. Wood points out that because 40% of Gen Z consumers use the likes of TikTok and Instagram to search the way their parents use Google, “social platforms with the best recommendation engines should command the majority of ad budgets.”
Meta, of course, owns Instagram, along with Facebook, WhatsApp, and Messenger. Its Threads “Twitter killer app” remains a work in progress. Its primary social media apps have a combined 3.9 billion monthly active users. Because there are an estimated 4.9 billion social media users worldwide, or 60% of the global population, Meta has an outsized influence on what people see and hear.
TikTok is a threat to be sure. As of 2022, it accounted for just $10 billion in search, video, and social media advertising, or about 2% of the $470 billion total. Yet it is rapidly nearing exceeding that taken in by Facebook, Instagram, Snapchat, and Twitter.
Still, Meta’s willingness to “borrow” the best ideas from its competitors means it should do well for the foreseeable future. Its TikTok knockoff Reels enjoys over 200 billion daily plays. New ad features could result in the apps becoming substantial revenue contributors on their own.
DraftKings (DKNG)
One of the remaining big avenues for digital leisure spending is online sports betting. After the Supreme Court struck down a ban on sports betting as unconstitutional in 2018, it spread to 36 states. DraftKings (NASDAQ:DKNG) is the second largest sportsbook behind Flutter Entertainment‘s (OTCMKTS:PDYPF) FanDuel and operates in 21 states.
DraftKings has 2.1 million active monthly users, or about half of FanDuel’s total. Yet FanDuel’s market share slipped to 47% from 50% while DraftKing’s share grew to 35%. That’s DraftKing’s highest share in three years.
Wood’s Big Ideas report forecasts online sports betting will expand at a 27% compounded annual growth rate through 2027. The industry will hit $330 billion in volume by then. That’s far faster than the 11% growth rate estimated for in-person betting, which will total just $27 billion.
There may be more states coming online too. Kentucky, North Carolina, Vermont, and Puerto Rico all passed legislation that will allow for mobile sports betting. An additional 12 states are considering allowing it as well.
Online gambling could provide additional growth in the future. After its acquisition of Golden Nugget Online Gaming in 2022, DraftKings is now the market share leader in a number of states. Most of the share loss has come from rival MGM Resorts (NYSE:MGM).
Wood recently sold off some of her stake in DraftKings. She was taking profits after the sportsbook’s meteoric rise this year. Shares are up 150% so far. The investing guru owns about 13.3 million shares, down from her peak holdings of 24 million shares a year ago. Still, it’s a serious commitment to the sportsbook. DraftKings is rapidly changing the game for all digital leisure stocks.
Spotify (SPOT)
Filling out the card in the seventh spot is music streaming platform Spotfiy (NYSE:SPOT). It is the world’s largest audio streaming company with 551 million monthly active users. Of that total, 220 million are premium subscribers. It added record numbers of new users in the second quarter. Revenue from subscription-based and ad-supported channels are growing at double-digit rates.
Yet there’s no doubt Spotify deserves the fair bit of criticism it comes in for from critics. It is all too willing to throw money at a perceived opportunity. The $200 million Spotify spent to lure Joe Rogan to the platform is arguably well spent. Other initiatives leave it with mounting losses. Losses doubled in the second quarter from the year-ago period and widened from the first quarter.
The stock doubled in value this year and it holds lofty valuations. Yet it is the leader despite some well-financed rivals like Apple Music and YouTube Music. Spotify, though, remains the go-to destination. Management says it is reining in spending, being more targeted in its efforts. CEO Daniel Elk told investors earlier this year, “In hindsight, I probably got a little carried away and overinvested.” He’s being more tight-fisted now and fired 6% of Spotify’s employees.
Spotify stock may be the riskiest of the bunch in terms of valuation. As a long-term investment, it should be a good bet on the rise of the digital consumer.
On the date of publication, Rich Duprey did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.