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It's Sunday, July 14, 2019. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation.

SaaS Boom Presages a SaaS Food Fight 

Follow James on Twitter @jwangARK


As Software-as-a-Service (SaaS) companies reach record valuations, this Seeking Alpha paywall piece by Akram’s Razor is quite illuminating.


According to Razor, two trends have paved the way for SaaS growth during the past decade. First is the growth and ubiquity of the public cloud. Historically, software companies had to procure expensive servers and hardware before they could develop. Today, however, software engineers are creating SaaS companies with little more than laptops and Amazon Web Service credits. Because the friction and cost associated with software development has collapsed, SaaS startups are proliferating and serving every industry niche. The second trend paving the way for SaaS companies has been the unbundling of software from monolithic systems and the conversion to micro-services stitched together by lightweight APIs facilitating agile and faster software development and more scalability. Independent modules for payments, HR, and databases also have created opportunities for newcomers like Stripe, Workday, and MongoDB.


While these two trends have created many startups, the market seems to be getting saturated. Unlike the greenfield opportunities available in their early days, SaaS companies today are beginning to compete against one another. Adobe and Salesforce are dueling it out in marketing cloud platforms, Atlassian and PagerDuty in alert management, and Slack and Microsoft in team communications.


Today’s SaaS valuations suggest years of unabated growth. The competition now suggests more caution ahead.



Trump Talks Bitcoin

Follow Yassine on Twitter @yassineARK


This week marked the first time a US President has addressed the topic of bitcoin. On Twitter late Thursday night, President Trump shared his views on cryptoassets generally and bitcoin specifically. In a thread, Trump stated that he is "not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air," adding that "unregulated cryptoassets can facilitate unlawful behavior, including drug trade and other illegal activity." In the second part of the thread, Trump addressed Facebook’s Libra, stating that it “will have little standing or dependability” and would require “a banking charter…subject to banking regulations.” Trump’s comments on Libra are another indication that Facebook will face regulatory scrutiny as the centralized issuer of a “digital currency”.


Surprising to some, Trump’s pronouncements have generated excitement in the Bitcoin community, primarily because it seems “all publicity is good publicity.” Many of its advocates consider Bitcoin an antifragile system: under stress and noise, these systems thrive and become more robust. In the last ten years, Bitcoin’s antifragility powered it through the Silk Road shutdown, exchange hacks, and country bans as its price, while volatile, has scaled exponentially.


Trump’s comments probably will pique more interest in bitcoin, educating more people on its value proposition as a decentralized and independent monetary system. Squawk Box’s cogent response to Trump’s comments is a good example of the evolution of mainstream thinking.


Since Trump’s tweet, bitcoin’s price has appreciated more than 5%.


Doubts About Illumina’s Acquisition Have Depressed Pacific Biosciences’ Stock

Follow Simon on Twitter @sbarnettARK


Last November, DNA sequencing giant Illumina (ILMN) announced its intention to acquire Pacific Biosciences (PACB) for $1.2 billion. While Illumina’s short-read instruments cater to broad-based genomic research and diagnostics, PacBio’s long-read platform is gaining traction in research on the microbiome, population genomic studies, and the discovery of mutations. If it completes the acquisition, Illumina will dominate the sequencing market. By merging both short- and long-read data into its cloud, BaseSpace, Illumina could accelerate the understanding of links between disease and therapy.


When Illumina announced that the acquisition probably would be completed in mid 2019, PACB shot up more than 60% to $7.56. Since then, PacBio’s shares have dropped roughly 20% to $5.90 because of antitrust concerns. UK-based Competition and Markets Authority (CMA) noted that the acquisition would eliminate PacBio as a competitor in the space.


In ARK’s view, long- and short-read technologies serve separate use cases and should combine to accelerate scientific studies that will have profound impacts on healthcare decision-making.


Virgin Galactic Plans to go Public

Follow Sam on Twitter @skorusARK


This week we learned that the special purpose acquisition company (SPAC) that the founder and CEO of Social Capital, Chamath Palihapitiya, created two years ago took a 49% stake in Richard Branson’s Virgin Galactic, valuing it at $1.5 billion. Virgin Galactic has a two-step business plan. Its short-term goal is to launch a space tourism business, while its longer-term goal is to disrupt long-haul travel with point-to-point hypersonic flights. ARK questions whether the demand for space tourism will gain traction soon enough to fund Virgin Galactic’s hypersonic transportation goal which, in the medium term, seems like the bigger opportunity.


Virgin Galactic believes the addressable market for space tourism in the short term is wealthy individuals willing to spend 1% of their total net worth on such an adventure. The current price of Virgin Galactic’s tickets is $250,000 but should fall as demand scales, as is the case with most technologies. According to our research and as shown below, at $250,000 a ticket the addressable market is roughly 600,000 people but at $50,000 it will scale to more than 5 million. Converting just ~0.05% of the addressable market per year, Virgin Galactic could ramp space tourists roughly nine-fold from 300 to more than 2,700, as shown below.  In that context, its 600 deposits and 2,500 inquiries to date have been most impressive. For a deeper dive into the company and its financials, please see ARK’s tweet storm around Virgin Galactic’s investor presentation.




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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