Geisinger’s Exome Sequencing Model Could Stimulate Wide Adoption of Genetic Testing

Follow Simon on Twitter @sbarnettARK

Over the next five years, ARK believes that DNA sequencing could have a profound impact on health care decision-making. As human genome sequencing costs have dropped from nearly $3 billion in 2003 to under $1,000 today, growth in routine genetic testing has begun to accelerate. According to our research, in 2023 the cost to sequence a whole human genome will fall below $100, giving doctors the ability to detect early warning signals and tackle diseases before they advance and cause serious illnesses.  

The Geisinger Health System is pioneering this transformation with a  commitment to sequence more than 250,000 patient exomes—the protein-coding regions of DNA—over the next few years. Already, after sequencing the first 50,000 genomes, Geisinger has found that 3.5% of the patients have mutations associated with heart attacks, strokes, and cancer, giving doctors the information necessary to take aggressive measures to prevent them.

In our view, the discovery rate will increase from 3.5% as researchers learn more about the connections between mutations and diseases.  Geisinger’s continued commitment to the funding of this project suggests that the economic model is sound and probably will be encouraged by insurers and adopted by other major healthcare systems.

Internet Advertising Is the Megatrend that Refuses to Die

Follow James on Twitter @jwangARK

About a year ago, we published a piece pointing out how industry analysts have underestimated the potential for internet advertising consistently and suggesting it could grow 17% per year from $280 billion in 2018 to $610 billion by 2023. At the time, eMarketer was predicting 15.8% growth for digital advertising in 2019, but in February it upped the estimate to 17.6%. Although a move in the right direction, this estimate still seems too conservative and could be under water by the end of the year.

Two quarters into 2019, most of the key internet advertising players have reported more than 20% growth in advertising revenue on a year over year basis.^[1] The exception is Google, which accounts for about 40% of internet advertising, but its growth accelerated from 15.3% in the first quarter to 16.1% in the second.^[2] Despite its bad press, Facebook grew advertising revenues 27% on a year over year basis while newly minted public companies like Snap and Pinterest posted more than 40%.

After evolving during the past two decades, internet advertising shows few signs of old age. Google’s and Facebook’s continued growth is testament to internet advertising’s superior value, measurable ROI, and ease of use. New formats illustrate that Pinterest and Snap, among others, are enhancing online advertising opportunities and extending its trajectory.

[1] Based on company quarterly results.

[2] Note: This is the ad segment, not Alphabet total.

Bitcoin’s Transaction Fee Revenue Is Approaching $1 Billion

Follow Yassine on Twitter @yassineARK

Bitcoin is closing in on $1 billion worth of transaction fees generated since inception, as first highlighted in a report released by Coinmetrics. Among the top 10 cryptoassets by market cap, its share of revenues generated by fees dominates at ~90%, as shown below.

Also shown, the reverse was true during the summer of 2018: Ethereum (ETH) generated 90% of fee revenue and Bitcoin (XBT), 10%. Among the reasons that ETH fees were so high last year were fee mining on exchanges like Fcoin and the popularity of mass airdrops.

Today, Bitcoin and Ethereum are the only two cryptonetworks generating meaningful fee revenue. Bitcoin’s cumulative fee revenue stands at $950 million, equivalent to 7% of its total miner revenue, while Ethereum’s stands at $225 million, equivalent to 3.75% of its total miner revenue, as shown below.

Other cryptonetworks like Bitcoin Cash (BCH) and Bitcoin SV (BSV)are generating substantially less miner revenue. Bitcoin’s transaction fee revenue alone, which as previously mentioned only accounts for 7% of its total miner revenue, is greater than BCH’s and BSV’s combined, as shown below.

Square Secures Instant Payroll Patent

Follow Max on Twitter @mfriedrichARK

On July 2, Square (SQ) secured a patent that enables Square sellers’ employees to receive instant access to their salary, possibly directly via Cash App, Square’s consumer platform.Wage checks can take two weeks to hit workers’ bank accounts explaining why, according to the FED, 40% of Americans are not able to cover an unexpected $400 cost. Payout delays are one of the main reasons that the $40 billion payday loan industry exists, a space in the financial services industry that now Square is targeting squarely.

In the patent, Square outlines how a ‘service provider’ will offer eligible employers cash advances so that they can disburse wages instantly to eligible employees. As shown in the chart below, an employee would receive a notification and payment on her smartphone, potentially at the end of each work day. Square plans to use machine learning to determine the level of reliability of both the employer and employee. It will incorporate and monitor the length of time an employer has been in business, its account balances, chargebacks and fraud, and inventory, among other factors. To gauge the reliability of employees, Square will incorporate and monitor the employee’s history with an employer as well as his work schedule and adherence to it, among other factors. Square’s algorithms will determine not only the eligibility but also the amount that an employer will be able to borrow and disburse to an employee.

Because it already offers its sellers payroll management services, Square is in a good position to offer other financial services to both employers and their employees given its information advantage. Indeed, its consumer platform, the Cash App, could continue to facilitate the convergence of two powerful ecosystems: merchants and consumers.

Hypersonic Flight Could Become a $270 Billion Market

Follow Sam on Twitter @skorusARK

Virgin Galactic’s near-term plan is to operate a space tourism business, but ARK’s research suggests that the real opportunity is its longer-term plan to provide point to point hypersonic travel.

How big is the market for supersonic travel?  Seemingly, the primary objective of customers seeking private flight services is the saving of time, including wait times at airports or transfers to reach out of the way destinations. As a result, 77% of private flights are fewer than 1,500 miles and save more than 50% of the time that otherwise would be traveled commercially.

If hypersonic travel were to target flights at least 7 hours long, the total available market would be approximately 15% of all flights, nearly 40X the 0.4% of passenger air miles flown privately in the US last year. So, if 15% of the 4.5 billion passengers who flew in 2018 were on flights longer than 7 hours, and only 0.4% of them decided to use a private service, then the addressable market would be 2.7 million people: 4.5 billion x 15% x 0.4%.

How much, then, should a hypersonic ticket cost? As shown below, based on the amount people pay for private flights today, a two-hour private hypersonic flight from New York City to Japan should cost roughly $100,000, as shown below.

Combining the 2.7-million-person addressable market and the $100,000 ticket suggests the hypersonic market will be $270 billion annually. A sizeable opportunity for Virgin Galactic, which is currently valued at roughly $1.5 billion. The question remains whether or not Virgin Galactic can execute on the opportunity and continue to fund operations while it builds its space tourism business.

Will Autonomous Taxis Rent Snoozes?

Follow Tasha on Twitter @TashaARK

This week we learned that Japanese consumers are renting cars to nap, eat, and store belongings.^[1] When autonomous taxis commercialize, we expect many different form factors and use cases, from middle-mile logistics solutions to entertainment.

According to our research, when autonomous taxis reach scale, a ride could cost the consumer just 22 cents per mile. At this price point, based on the use cases evolving in Japan, they could be used for sleeping and snacking.

At the same time, however, city regulators could try to capture more revenue by charging taxis for curb time or congestion in high traffic zones. As mapping and imaging services become cheaper and easier to use, pinpointing the location of each vehicle should become easier, giving city officials the ability to charge for location-based usage of public roads.

[1] Thanks to the Trucks Venture Capital Future of Transportation Newsletter