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It's Monday, October 21st, 2019. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation.

CRISPR May Have Cured Sickle Cell Disease

Follow Manisha on Twitter @msamyARK


CRISPR may have cured a patient of sickle cell disease (SCD), an ailment that causes serious pain, fatigue, and economic distress, not to mention shortened life spans. Afflicting millions of people around the world and roughly 100,000 in the U.S., SCD treatment costs approximate $1 million over the course of each patient’s lifetime.


Victoria Gray is the first person to have been dosed in the US with CRISPR, a gene-editing treatment. While doctors will need several months to verify that the CRISPR-edited blood cells are producing fetal hemoglobin to compensate for her defective adult hemoglobin proteins, Victoria believes that these new cells “gotta be super” now that she can spend high quality time with her family.


Although anecdotal and a sample of one, Victoria’s testimony appears to corroborate many scientists’ conviction in the safety and tolerability of this gene-editing technology. CRISPR may be beginning to offer hope of a normal life for patients like Victoria Gray with historically debilitating diseases.


What Are the Most Productive Online Sites for Advertising Budgets?

Follow Nick on Twitter @GrousARK


Ten years ago, before finding more efficient outlets on the internet, most ad dollars flowed to TV, radio, and print. Since then, with millions to billions of users, online platforms have demonstrated that advertising is not only a better idea than historically has been the case but a great idea.


Google and Facebook dominate the US digital landscape with more than 55% market share of online advertising spending. Their pioneering models have given advertisers unparalleled insights about consumers that many other online platforms are trying now to replicate.


To gauge the success of these platforms we analyzed the ad revenue per user hour that each is delivering. As shown in the chart below, most platforms have surpassed or will soon surpass the ad revenue per user hour of US radio.  More impressive, Facebook and Instagram have surpassed linear TV. In fact, Facebook’s ad revenue per user hour appears to be closing in on that of the Super Bowl!

Screen Shot 2019-10-20 at 9.57.56 PM

So, where will digital advertising go from here? While the consensus forecast is that it will stabilize at 0.65% of global GDP, ARK estimates that digital advertising is close to an inflection point. In our view,internet ad spending will surpass traditional advertising and account for two-thirds of the global ad market which should grow from roughly $550 billion last year to $900 billion in five years.



Google’s New Vision Is Ambient Computing

Follow James on Twitter @jwangARK


At its annual hardware conference, Google unveiled phones, speakers, earbuds, and laptops around the narrative of “ambient computing”. In contrast to today’s screen-based computers that require interaction, ambient computing lives in the background as a collection of speakers, cameras, and sensors, using voice and artificial intelligence as the main forms of interaction.


Whether called voice-first or ambient-computing, a new platform could be brewing. Platforms are enablers of and gatekeepers for third-party software, collecting distribution fees and/or invaluable data. Markets reward platform companies with high valuations, a reason why tech giants like Apple, Google, Amazon, and Microsoft are trying to insinuate themselves into this new form of computing.


What makes ambient computing exciting is the lack of clear winners. Each tech giant has both structural advantages and disadvantages. Amazon doesn’t offer a phone, Google has questionable privacy protections, and Apple’s product lineup is limited. Ambient computing is still up for grabs, the winner likely creating a new business model that transcends both hardware and advertising.


We believe the winner in ambient computing will be artificial intelligence (AI). Each voice command will be processed with a neural network, and given billions of voice commands daily, AI will become the focal point of software and hardware. As an example, the new Nest Mini smart speaker unveiled this week comes with a Google AI chip capable of a trillion operations per second. These chips will be ubiquitous in the future.



As Fees Disappear, Innovation Is Critical to the Success of Brokerage Firms

Follow George on Twitter @GeorgeOfARK


Now that they are eliminating fees on US equity, ETF and option trades, brokers are innovating in ways that they hope will salvage their business models as they compete against upstarts like Robinhood. Interactive Brokers and Charles Schwab are at the forefront of these changes. Last year, the Supreme Court struck down The Professional and Amateur Sports Protection Act which banned sports betting outside Nevada. Since then, nine states have legalized sports betting, giving Interactive Brokers the opportunity to launch ‘Bet, Learn, Win’, a simulated market in which users can bet on live sporting events. Bet, Learn, Win could serve not only as an acquisition channel for IBKR Lite, Interactive Brokers’ commission-free trading product, but also as an entree to online sports gambling, an estimated $67 billion market per year in the US. Likewise, on Thursday Schwab announced that soon it will allow clients to buy and sell fractional shares commission-free, potentially appealing to a younger, less affluent demographic.   



US Challenger Banks Go Offline

Follow Max on Twitter @mfriedrichARK


This week, Chime’s customers were not able to access their bank accounts or use their debit cards. According to reports, the challenge bank’s technology provider, Galileo Processing, went down and caused an outrage. Apparently, challenger bank Varo faced similar troubles. Both Chime and Varo outsource their back-office technology needs to Galileo and have partnered with Bancorp as their FDIC-insured bank.


In September, Chime announced that it had surpassed 5 million in bank accounts but, as Ron Shevlin points out, it encourages users to sign up for multiple accounts . A 2019 Cornerstone Advisor survey concluded that Chime’s customer base is closer to 1.6 million.


Coincidentally, on Thursday Galileo Processing raised $77 million in a funding round led by Accel. The Salt Lake City-based company provides fintech companies with the technical infrastructure to launch products such as debit cards, powering companies like Chime, Varo, Robinhood, Monzo and Revolut. With a model based on cost-plus instead of percent of transactions, Galileo is profitable while still growing at a 130% rate on a year-over-year basis. Even on low dollar transactions, Galileo seems to be profitable, while processors taking a percent of transaction dollars often appear to lose money. This weak spot likely pushed Square to add $.10 per transaction to its pricing structure recently.



The ICO Crackdown Continues

Follow Yassine on Twitter @yassineARK


The SEC has leveled another lawsuit at the ICO space. Earlier this month, it announced a lenient settlement with, the company behind the industry’s largest ICO, but this week it shifted its attention to Telegram, the company behind the industry’s secondlargest ICO.


In February 2018, messenger app Telegram raised $1.7 billion in an ICO for its TON Blockchain Network. According to the SEC, however, it was financing its business and should have registered the security. As a result, the SEC filed an emergency action and slapped Telegram with a restraining order.


Co-Director of the SEC’s Division of Enforcement, Stephanie Avakian, explains: “Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold. We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.”


Upon news of the lawsuit, Telegram announced that it would delay the launch of its native blockchain network until April 2020, stating that “the recent SEC lawsuit has made that timing unachievable. We disagree with the SEC’s legal position and intend to vigorously defend the lawsuit. We are proposing to extend the deadline date in order to provide additional time to resolve the SEC’s lawsuit and work with other governmental authorities in advance of the launch of the TON network.” This lawsuit should make ICO projects wary of their fate in the US. Indeed, stringent enforcement could deter other blockchain entrepreneurs from investing in the US.


Telegram is scheduled to attend a court hearing in the US on October 24th. ARK will be closely monitoring the outcome and evaluating its consequences.


We Believe Automation Won’t Cause Unemployment But It Could Lower Wages 

Follow Sam on Twitter @skorusARK


ARK’s research suggests that automation will contribute $12 trillion to overall real US GDP by 2035, adding more than 40% to economic activity than otherwise would be the case. Broadly speaking, increased automation could yield three outcomes, none of which is mutually exclusive:

  1. Wages could increase.
  2. Corporate margins could improve.
  3. Companies could lower the price of goods.

A Yale paper suggests that the first of these outcomes is the least probable. While most reports on robotics focus on the negative impact of automation on low skilled labor, Yale’s paper postulates that it also will lower the wages of experienced laborers. In other words, automation should leverage the performance of inexperienced workers relative to that of higher paid more experienced workers. As more occupations automate, therefore, wages relative to employment skills could flatten out, as shown below.

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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