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It's Sunday, September 22nd, 2019. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation.

Datadog’s IPO Extends a SaaS Hot Streak

Follow James on Twitter @jwangARK


While consumer tech IPOs are having one of the worst years in memory, enterprise software-as-a-service (SaaS) stocks appear to be soaring upon their launch. The latest entrant—New York based application monitoring platform Datadog—went public on Thursday and jumped 39% to a $10 billion valuation by the end of day one. At 41x trailing sales, DDOG is the third most expensive SaaS stock in the US, trailing only Zoom (ZM) and Crowdstrike (CRWD).


Why are investors awarding SaaS companies eyewatering multiples while pushing consumer names like Uber and Lyft below their IPO prices? The answer, in our view, is growth-efficiency. Uber grew revenue a meager 14% in the second quarter and burned more than $1.6 billion in cash during the first half of 2019. Since going public, Uber looks neither like a growth company nor a profitable company, rightly unsettling investors. In comparison, Datadog grew revenue 80% in the first half and cashflow was nearly breakeven. Recouping every one of its marketing dollars in less than a year, Datadog appears to be the most efficient SaaS company to launch since Zoom.


As shown below, Datadog’s performance metrics are best-in-class among its peers. Yet, with SaaS valuations near all-time highs, investors may be chasing growth and free cash flow a bit too aggressively.


Facebook Launched Portal TV

Follow Nick on Twitter @GrousARK


On Wednesday Facebook launched Portal TV, a device that will allow users to chat and video-stream from their televisions. Portal TV is not Facebook’s first device for the home.


Last November, Facebook released Portal, a smart-display aiming to compete with Google Home, HomePod, and the Amazon Echo. Given the privacy concerns associated with these devices and Facebook’s clash with privacy advocates, Portal met with a high degree of skepticism and little success. Hoping to assuage privacy concerns, Facebook has added plenty of features to the new Portal TV.


With Portal TV, Facebook is entering a crowded connected TV market including Roku, Chromecast (Google), Fire TV (Amazon), and Apple TV. Facebook will have to prove that it can offer the same streaming quality as its competitors and a video-chat capability that is differentiated and exceptional. Like the original Portal device, Portal TV’s main selling point is a high definition motion-tracking camera allowing users to video-chat on Facebook Messenger or WhatsApp.


An important question is which SVOD (Subscription Video on Demand) will be available on Portal TV. As of now, just a few services including Amazon Prime Video, Showtime, and CBS All Access have signed on. If Facebook is unable to convince other big-name SVODs like Netflix, Disney+, and Apple TV+ to join, Portal TV could be dead on arrival.



Amazon Launches PayCode Payment in the US

Follow ARK on Twitter @ARKInvest


According to the Federal Reserve Bank of San Francisco while online shopping continues to grow in the US, ~77% of payments still are made in person, 39% of which are in cash.


On Wednesday, Amazon launched PayCode in the US, adding its availability to that in 19 other countries including Barbados, Chile, Columbia, and Kenya. Amazon Paycode allows cash-based users to make purchases online. After making purchases on-line, users present in person codes that Amazon sends them to Western Union, which then scans them and accepts cash. Once Western Union wires the funds, Amazon ships the orders.


Amazon Cash, a similar payment method in place for ~18 months in the US, allows customers to add cash to their Amazon balances by visiting participating retailers, among them 7Eleven, CVS, and Walgreens. (Interestingly, Amazon Cash is notavailable at Whole Foods, which Amazon owns, perhaps because its business is not cash heavy.) Customers then can make purchases online with the funds in their Amazon Cash accounts.


Amazon continues to recognize that the financial services industry does not serve many individuals adequately. As illustrated in the FDIC’s 2017 report, 18.7% of the US adult population is underbanked. While the age of digital payments is upon us, Amazon is making data-informed decisions to ensure that anyone can access its platform, regardless of payment method.



Wells Fargo Is Launching Digital Cash

Follow Yassine on Twitter @yassineARK


Wells Fargo Bank has announced plans to pilot an internal settlement service, Wells Fargo Digital Cash (WFDC).Expected to launch in 2020, WFDC will be an internal accounting system capable of facilitating cross-border book transfers. Pegged 1:1 to the U.S. dollar, this digital asset will run on a distributed ledger and will reduce the settlement times and costs associated with moving value across borders. As stated in the press release, “Final settlement will occur without the need for third parties, reducing transfer time and costs. Corporate clients will not have to change their payment processes, cash management responsibilities or relationship management practices to benefit.”


Earlier this year in the same space, JPMorgan announced the launch of JPMCoin (JPMC), a digital coin representing U.S. dollars in JPMorgan Chase accounts. WFDC will operate much like JPMC.


As we noted in ARK Disrupt 161, JPMCoin, and by extension Wells Fargo Digital Cash, are not cryptocurrencies. Interestingly, while JPMorgan explicitly labeled JPMC a cryptocurrency, Wells Fargo has avoided using the term altogether.


Amazon Orders 100,000 Electric Delivery Vans from Rivian 

Follow Sam on Twitter @skorusARK


Founded in 2009, Rivian finally caught the market’s attention in 2018 when it unveiled its high-end electric SUV and pickup truck. Since then, it has attracted $500 million in funding from Ford, $700 million from Amazon and, most recently, $350 million from Cox Automotive.


On Thursday, Amazon announced an order of 100,000 Rivian electric delivery vans worth an estimated $8 billion, an impressive vote of confidence and a welcome safety net for an EV startup that has yet to deliver its first vehicle. Jeff Bezos expects the first vans to be delivered in 2021 and the entire fleet by 2024. Providing some perspective, FedEx has ~180,000 vehicles in its global delivery fleet, including heavy duty trucks.


If Amazon takes delivery of all 100,000 vehicles, not only will Rivian’s business get off the ground but Amazon also will enhance and secure its position in the logistics-as-a-service space. ARK expects business-to-business vehicle fleet sales to proliferate, particularly as autonomous travel and delivery change the dynamics of the logistics space. 



Parcel Delivery Pilots Gain Speed in the US 

Follow Tasha on Twitter @TashaARK


This week Alphabet’s Project Wing, its parcel drone delivery effort, announced a partnership with FedEx and Walgreens to pilot drone delivery service in Virginia. After launches in Australia and Finland, Wing will be entering the third phase of US-based trials conducted under a government approved program for commercial drone tests. In response to Australian complaints about noise and drone-induced dog anxiety, Wing has announced a quieter drone with noises that blend better into the environment for the Virginia trial.


Project Wing’s service will be free to approved users, offering items from Walgreens and express packages from FedEx. Notably, 78% percent of the US population lives within 5 miles of a Walgreens, ideal for Wing drones capable of 6 mile roundtrips. Wing’s drop-off plan also is interesting, as it will release packages on a tether from roughly 20 feet in the air.


ARK estimates that drones would be able to deliver small packages in 30 minutes or less for under $1 if regulators were to approve them today, and that drone delivery revenue could reach roughly $500 million by 2030. Convenient and cheap drone delivery could push global ecommerce as a percent of total retail sales from 13% today to 75%, well above the 50% penetration rate likely in the absence of drones.


ARK acknowledges that noise will remain an issue for drone startups generally and that Wing’s tether design will elicit added controversy. That said, pilot tests flying beyond line of operator sight illustrate that the US Federal Aviation Administration (FAA) is allowing the commercial drone industry to take flight.


Liquid Biopsies May Be Better Suited Than Tissue Biopsies to Aggressive Forms of Cancer 

Follow Simon on Twitter @sbarnettARK


The cost decline of next-generation DNA sequencing (“NGS”) is transforming the way in which clinicians diagnose cancers. Thanks to the sequencing of tumor tissues, doctors can differentiate between malignant and benign cancer. Yet, tissue biopsies can be invasive and often cannot be repeated during therapy.


Liquid biopsies, an emerging type of diagnostic test, can gather the same type of information about tumors with non-invasive blood tests. Yet, in our view, neither of these approaches to cancer diagnoses will supplant the other. Instead, they will complement one another in clinical practice to optimize patient outcomes.


A recent study compared the performance of cutting-edge tissue and liquid biopsies to assess thyroid nodules deemed indeterminate in terms of cancer risk. According to the researchers, unlike tissue-based assays such as Afirma from Veracyte (VCYT), liquid-based assays failed to distinguish between benign and malignant tumors consistently and accurately, suggesting that they are better suited to aggressive forms of cancer than to slower growing ones such as thyroid cancer. The logic here is that aggressive tumors shed more DNA fragments than non-aggressive tumors into the bloodstream. That said, liquid biopsies can and do identify extremely aggressive thyroid tumors.


While tissue-based tests probably will remain the standard of care for thyroid cancer management, liquid-based tests could augment them to assess tumor aggression.

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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