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3D Printing Unicorns Are Overvalued Relative to Their Public Counterparts 

Follow Tasha on Twitter @TashaARK


Desktop Metal, a 3D printing startup, raised $160 million in a round led by Koch Industries this week, adding to the examples of private companies selling at surprising premiums to public company valuations.  Valued at $1.5 billion with an estimated $100 million in 2019 sales, Desktop Metal’s price to sales ratio is roughly 15, almost seven times higher than the 2.17X at which ExOne, the current leader in binder jetting technology, trades in the public markets. Similarly, Formlabs, another private company in the 3D printing space, trades at roughly 10X sales, more than five times the 1.8X of its closest public counterpart, Stratasys.  


In the public markets, 3D printing (3DP) is in what we call “the valley of despair”: in the aftermath of the hype in 2012-2014 around 3DP in the consumer space, most stocks are down 80-90% and few portfolio managers or analysts want to admit that they ever owned or covered them. Sell-side coverage or advocacy is sparse, despite the emergence of 3DP in the industrial space, particularly aerospace.


With gross profit margins in the 15-20% range, aerospace companies like Boeing and Airbus are attracted to the 25-75%+ drop in costs and weight enabled by 3DP technologies. With the FAA’s blessing, they have begun to integrate 3DP into their design and manufacturing roadmaps and, yet, many 3DP stocks are valued at not much more than book value.


According to ARK’s research, the 3D printing market should scale more than 10-fold from $7-8 billion in sales today to more than $90 billion during the next five years. At some point, truth will win out: either private valuations will drop or public valuations will rise, or both! 


A Milestone in Achieving Artificial General Intelligence—DeepMind Beats the Pros at StarCraft II 

Follow James on Twitter @jwangARK


DeepMind’s latest AI system—AlphaStar—has beaten two professional players in Blizzard’s real time strategy game StarCraft II. While it received some press coverage, this milestone deserves far more attention because we believe it is more impressive than the breakthroughs achieved by IBM’s DeepBlue and DeepMind’s AlphaGo.


Unlike classic board games such as chess and go, StarCraft II embodies the complexity, random nature, and chaos associated with real world problems. Games like chess are turn-based, limited in scope, simple and fully visible on a board. StarCraft II is a full-blown war simulation requiring the player to make real time decisions on resource allocation, construction, unit control, and battle. Unlike chess players who always play on the same board, StarCraft II players face different maps each season, making their moves unlimited in scope.


Similarly to AlphaGo, DeepMind’s AlphaStar was trained with supervised learning and reinforcement learning.  This time, however, the training took place on hundreds of Google TPUs (Tensor Processing Units) and cost an estimated $3.8 million in computing power.


Arguably, AlphaStar is the most important step forward thus far toward the goal of artificial general intelligence—the holy grail of AI.  Perhaps because it has yet to beat the world’s best StarCraft II player, the press has not zeroed in on the importance of AlphaStar’s recent milestone. Having learned from the rapid and relentless progress of AlphaGo in 2017, we believe that AlphaStar will defeat the world champion of StarCraft II by the end of the year.


Remember, you heard it here first!



How Will Unicorns Find the Exit? 

Follow Max on Twitter @mfriedrichARK


Since 2014, unicorns have been exiting the private world at an exceedingly slow pace. The ratio of their annual exit value to their total unrealized value has averaged just 15% during the past three years, leaving most of the nearly $1.2 trillion in unrealized value hostage to a liquidity event, as shown in the graph below.

Unicorn investors probably are eager for a return to strong exit years like 2012 and 2014. Each of those years, however, was distorted by Facebook’s and Alibaba’s IPOs tallied at $100 billion and $160 billion, respectively.  Now that the market for tech deals is cooling down and valuation levels appear highly questionable, such blockbuster exits are unlikely to repeat.


Source: ARK Investment Management LLC, 2019; CrunchBase, CBInsights, Wallstreet Journal, Company Information


Mobility sector unicorns highlight the imbalance between low exit volumes and record high valuations, as shown below. Only 3% of the unrealized value exited over the past six years. During the same time, the valuations of mobility startups soared more than 20-fold from $9 billion to more than $200 billion, with 24 of them now accounting for nearly 20% of the $1.15 trillion in unrealized value of all unicorns.  Because so few have been able to exit, some are lowering their valuations.  Perhaps private investors should do the same with their return expectations.


Source: ARK Investment Management LLC, 2019; CrunchBase, CBInsights, Wallstreet Journal, Company Information



The Smart Home Race Is Heating Up

Follow Nick on Twitter @GrousARK


One of the largest homebuilders in the United States, KB Home (KBH), is incorporating its KB Smart Home System with a Google Assistant in two of its newest developments. The homes will come with a Google Wi-Fi network, two Google Home smart speakers, and a Nest Hello video doorbell. The Google and KB Home partnership is the first in the homebuilding industry, but probably the first of many as competition among tech firms vying for a place in the home heats up.


Google launched its smart speaker in November 2016, two years after Amazon’s Echo hit the market.  Having acquired Nest Labs in January 2014, Google entered first but Amazon gets more credit for creating the smart home market with the Echo in late 2014.


Amazon’s smart speaker helped it gain majority share of the U.S market, but Google, Apple and others have ramped and are beginning to catch up. In 2017, Amazon’s Echo outsold Google’s Home 3.7 to 1, a ratio that dropped to 0.9 late last year. In other words, throughout 2017 and 2018Google outsold Amazon in the US, pushing the Echo from roughly 93% market share in 2016 to roughly 63%, as shown below.


Only a quarter of American households own smart speakers, so the market is far from saturated. Consequently, if Google strikes partnerships with more homebuilders, as well as other industries touching the home like insurance companies, it could continue to erode Amazon’s lead.


Screen Shot 2019-01-27 at 9.57.21 AM



The BIS Concludes That Bitcoin Is Unsustainable. Really? 

Follow Yassine on Twitter @yassineARK


A recent report by the Bank for International Settlements’ (BIS) Principal Economist, Raphael Auer, discusses the unsustainable economics of Bitcoin’s proof of work and concludes that it is destined to fail. The paper delineates two economic limitations of the proof-of-work model: “The first lies in the fatality of 51% attacks and the extreme costs of ensuring payment finality in a reasonable space of time. The second is that these systems will not be able to generate transaction fees that are adequate to guarantee payment security in the future.”


Upon deeper inspection of Auer’s arguments, we posit that the first limitation is based on a fundamental misunderstanding of proof-of-work, while the second has been debunked at length in the past. That said, we agree that Bitcoin’s security mode is critical to its success and encourage active research on its long term sustainability.


Addressing the first limitation that Auer cites, Hugo Nguyen lays out a cogent analysis on Bitcoin’s security here. Addressing the second limitation, Bitcoin’s ability to generate market-based fees, Nic Carter explains two incompatible economic theories here.


Perhaps more worthy of discussion is the author’s employer, the Bank of International Settlements.  Nearly a century old, Switzerland-based BIS is governed by 60 of the world’s largest central banks, entities that might have a strong point of view about the viability of a global digital currency and the technology supporting it.  Effectively, Bitcoin’s base layer is competing with central banks and BIS/Fedwire for money-issuance and final settlement. Potentially disintermediating central control in final settlement, Bitcoin would rob the BIS of one of the most important reasons it exists.



Genetic Reshuffling Suggests That HIV Medication Could Slow the Progression of Alzheimer’s 

Follow Simon on Twitter @sbarnettARK


Neurologists have hypothesized that Sporadic Alzheimer’s Disease (“SAD”) is associated with mutations of the APP gene that encode a protein called amyloid.  A recent study that combined long- and short-read sequencing helped to clarify the connection between mutated variants of APPand the progression of SAD. It confirmed the APP hypothesis and, in the process, surfaced a genetic reshuffling in the brain that responds to medication used to treat HIV.


Somatic recombination occurs when genes rearrange to create biological diversity, typically in sex cells and in lymphocytes, the latter to aid immune responses. Recently discovered in the brain, an enzyme called reverse transcriptase (“RT”) can capture APPmRNA, and then synthesize and reinsert mutated APPDNA back into the host genome. As a result, deformed amyloid proteins can accumulate in the brain as plaque, accelerating cognitive decline. Interestingly, RT is the enzyme that retroviruses like HIV use to infect humans.


Studying this target, researchers found that out of the 120,000 individuals treated for HIV and at a high risk for SAD, only one had both conditions. The miniscule overlap suggests that antiretrovirals, the class of medication used to treat HIV, could be used to prevent the progression of SAD.



Biotech in China is Booming 

Follow Manisha on Twitter @msamyARK


Unhindered by capital constraints and complex regulatory hurdles, China is recruiting top scientists from the western world to accelerate clinical development and drug commercialization. While ethical concerns about Chinese biotech escalated in the aftermath of the CRISPR-edited babies and the genetically-cloned macaques modified to carry severe neurodegenerative diseases, these scientific feats do illustrate the potential of truly innovative medicines. Western companies are taking due note.


While Chinese scientists have been denigrated for a lack of discipline in conducting clinical trials, we believe that Western companies partnering with their Chinese counterparts will increase the credibility and quality of clinical trial data. With 3.5 times the cancer patients in China compared to the US, clinical trials across both countries could complete patient enrollment in a fraction of the time and at 50% of the cost of those in the US alone, accelerating the time to market for potentially life-saving treatments and cures.

ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.



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