It's Monday, August 3, 2020. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation.
According to the St. Louis Federal Reserve, US homeownership just hit a level not seen since July 2009. While survey distortions associated with the coronavirus crisis may have played a role, we believe that the demand for more personal space during the crisis and a drop in mortgage rates to more than 50-year lows were much more important. Anyone deliberating the purchase of a second home or a move to the suburbs seemed to have jumped off of the fence during this period. Validating the Fed’s data, Zillowreleased data on Friday showing that homes moving from ‘for-sale’ to ‘pending’ increased 16.1% on a year over year basis.
In our view, homeownership will continue to rise, potentially surpassing all-time highs, as digital platforms take the friction out of the buying and selling processes. Next generation real estate platforms like Zillow and Redfin have begun to buy, renovate, and sell homes, simplifying and adding liquidity to the homebuying process.
Stay tuned for a blog providing a deeper dive into next gen real estate platforms!
Amazon and Shopify surpassed analysts’ earnings expectations significantly this week, validating PayPal CEO Dan Schulman’s comments that “e-commerce as a percentage of retail sales outpaced prior…forecasts by an astonishing 3 to 5 years” during the first half of 2020. Amazon’s retail growth in North America accelerated from 32% on a year over year basis during the first quarter to 51% in the second, a rate last seen in 2011. Meanwhile, Shopify posted GMV (gross merchandise volume) that was 50% higher than analysts had expected.
Much of Shopify’s earnings call focused on its efforts to open its platform and embed financial services and serve consumers.*Shop app, one of its key product launches, is a marketplace where consumers can search for and purchase items that Shopify sellers have listed.
Building such a marketplace may sound easy but, in the words of venture capitalist and marketplace guru Bill Gurley, “Aggregating suppliers is a necessary but insufficient step on its own. You must also organically aggregate demand.” Already serving suppliers, Shopify hopes that ‘Shop Pay’ and other consumer-focused financial services will aggregate demand.
While Shop Pay will compete directly with PayPal and other more established fintech players trying to match consumers with businesses, Square is differentiated because it already serves consumers with its Cash App and sellers with its point-of-sale (POS) devices. In theory, if it were to migrate all of its sellers online and incorporate additional e-commerce functionality into Cash App, Square should be ahead in creating the marketplace to which Shopify’s ‘Shop’ is aspiring.
*FintechToday’s Ian Kar does a great job in describing the concept of embedded finance using Shopify as the example.
A Bull Calf Named Cosmo Could Transform the Production of Beef
According to ARK’s research, CRISPR could expand the global agriculture market by an estimated $170 billion during the next five years. Editing the genomes of embryonic calves, CRISPR could add enough protein to feed the incremental demand associated with global population growth.
At UC Davis, recently researchers edited the embryo of Cosmo, a bull calf, to generate more male progenies. Male cattle are 15% more likely to convert food into weight, lowering the number of calves necessary for any level of beef production and consumption.
In our view, gene editing will revolutionize agriculture.
Organ Transplants Share Much in Common with Cell Therapies That Aim to Cure Cancer
A rapidly growing class of molecular diagnostics, liquid biopsies detect tiny tumor-derived DNA fragments in the bloodstream and, while guiding oncologists’ decisions today, could have more far-reaching benefits. ARK believes that liquid biopsies will revolutionize organ transplantation and accelerate progress in a new field of genomics —personalized cellular therapy.
CareDx(CDNA), a leader in transplant diagnostics, uses liquid biopsies to measure organ donor-derived DNA fragments in the recipient’s blood. The results inform physicians on the status of transplanted organs and the stability of recipients’ immune systems, gauging the risk of organ rejection. CareDx recently unveiled AlloCell, a test to personalize the dosing of off-the-shelf - or allogeneic - cell therapies. Allogeneic cell therapy and solid organ transplantation share many similarities, most importantly the transfer of biological liquids and tissues from donors to recipients. If not done carefully, both can cause severe immune reactions.
Historically, pharmaceutical companies producing small molecule drugs have used simple analytical tools to determine dosing for patients. A dose too low could render the therapy ineffective, and one too high could result in severe side effects.
Cell therapies are much more complex than small molecule drugs, requiring much more rigorous dosing strategies. In our view, AlloCell is poised to standardize and personalize dosing for complex and powerful allogeneic cell therapies such as CAR-T. We believe that given CareDx’s preeminence in the transplant ecosystem and its focus on patient-centric care, AlloCell could become one of the best-in-class surveillance tools.
At the same time that SpaceX reportedly launched another funding round, Amazon receivedFCC approval for its Project Kuiper satellite constellation. Both SpaceX and Amazon hope to provide high-speed internet globally through satellite constellations. With more than 400 satellites already in orbit, SpaceX is deploying its constellation and beginning its beta test, while Amazon is committing $10 billion to its constellation.
ARK’s research suggests that the annual addressable market for satellite-delivered internet will be $10 billion in the US and $36 billion globally, though it will face some roadblocks in the short term.Antenna costs, for example, will have to fall significantly before satellite-delivered internet will be able to scale.
Interesting to note, and often misunderstood, while they have focused on the same opportunity, neither SpaceX nor Amazon is competing directly with Iridium. Iridium operates in a different frequency band and targets different end use cases, specifically mobile applications requiring near guaranteed connectivity, like maritime distress systems and military handsets.
ARK is looking forward to learning how Amazon plans to catch up with SpaceX, especially given the latter’s launch cadence.
Will Traditional Automakers Be Able to Deliver Over-the-Air Software Updates That Change Performance?
As global auto production declines by 25%, automakers will have to figure out not only how to survive but also how to make the transition from human-driven gas-powered cars to autonomous electric vehicles. In the process, ARK wonders if they will fall short on over-the-air software updates, a key enabling technology for autonomous electric platforms.
While Tesla has been delivering over-the-air (OTA) software updates that improve their electric vehicle (EV) performance since 2012, traditional automakers have struggled to follow suit. General Motors promised that it would facilitate OTA updates before 2020 but did not provide any information or updates on its earnings call this week. Daimler recently partnered with Nvidia for help on autonomous software, while Volkswagen has struggled to enable its first OTA updates on the ID.3, now slated to be delivered in September. On its earnings call this week, management acknowledged that Volkswagen still has to prove itself as a software enabled company but is confident that it will do so.
While ARK is looking forward to the day when other automakers join Tesla in the move to OTA software, many of them are facing a major conflict. They will be disintermediating their dealers whose profits rely heavily on servicing autos.
Be kind, stay safe, and we hope you find this information useful.
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