This is a blog series based on ARK’s weekly brainstorm between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders and investors. It is designed to keep you engaged in an ongoing discussion on disrupitve innovation.
1. Tesla Bids To Acquire SolarCity
Last week TeslaTSLA made a bid to acquire SolarCitySCTY. While Tesla is pursuing a tremendous opportunity with autonomous electric vehicles, ARK is extremely unhappy with Tesla’s bid for SolarCity. The cost to sell and install a solar panel for a residential customer is enough to make it uneconomic in most states. Solar is also susceptible to state regulations. Nevada, a state where solar used to be attractive, increased the fixed cost associated with being connected to the grid, so that customers who signed long term contracts with solar providers now are facing unfavorable economics. SolarCity also is counting on residential electricity prices to rise faster than they have in the past four years. During a conference call, Elon Musk suggested that both SolarCity and Tesla would benefit from sales and pipeline synergies, but ARK is skeptical that the economics for solar make sense even with the outlined synergies. The timing of the bid is also difficult to fathom, as Tesla will be ramping up production for the launch of the Model 3 in the next two years, and skeptics already doubt its ability to jump from roughly 50,000 in total sales last year to its stated production goal of 500,000 in 2018.
2. Look Out For Driverless Toyotas
ToyotaTM may have been slow to take its first steps in the autonomous vehicle market, but the automaker is moving as fast as it can to catch up. Toyota is investing $1 billion for a new Toyota Research Institute for autonomous vehicle and robotics research, which now has offices in Silicon Valley, Michigan, and Cambridge, MA. Toyota also has partnered with Stanford, the University of Michigan, and MIT. In March, Toyota acquired the team of Jaybridge Robotics, an MIT artificial intelligence (AI) software startup, to kick-start the Research Institute. Toyota currently is testing autonomous vehicles in Japan and plans to have semi autonomous solutions ready for customers by 2020. Toyota uses HERE maps, the mapping company owned by German automakers that is building an autonomous map database, and uses Continental-made vision solutions, including limited range LiDAR. If Toyota were to start collecting LiDAR data from its installed base of customer vehicles, it could outpace technology players like Google that have a limited number of test vehicles. ARK is keeping a close eye on it, so stay tuned!
3. Twilio Reignites Tech IPO Scene
After a long drought in tech IPOs, Twilio catapulted onto the NYSE on Thursday with an impressive 60% gap up at the open. Founded in 2007, Twilio provides easy to use APIs to access traditional telephone networks. For example, in response to an Uber request, Twilio provides a one–time number to communicate between driver and passenger. Upon conclusion of the transaction, the number disappears. AirBnB, Walmart, and Sony are among Twilio’s 28,000 active customers.
Initially priced at $15 per share or $1b in market cap, Twilio was valued at roughly 7x gross profits, a significant discount to its peers growing at half of Twilio’s rate. Given its current growth rate of 78% year over year, ARK estimated that $21–$28 would be a fair price range for Twilio. On day one of trading, it closed at $28.6. The takeaway? Markets are working as expected and will value growth and quality appropriately.
4. The DAO Hack: What’s Next for Ethereum and Smart Contracts?
As we mentioned last week, the world’s most successful crowdfunding project—The DAO—was hacked to the tune of $50M+ only a few weeks into its short life. Explained in depth by Andreas Antonopoulos, a well-respected figure in bitcoin, the attack began on June 18th and exploited a flaw in the code of The DAO that allowed the attacker to recursively transfer funds into a “child DAO,” draining funds from the “parent DAO.” Fortunately, due to the implementation of The DAO, the attacker’s funds will be immobile for 34 days, and likely will be made immobile indefinitely by a soft fork that the community is rolling out. The soft fork would be a temporary fix while the community decides how it wants to handle the problem permanently.
There are two camps of thought about the permanent fix, which will set the tone for the future direction of Ethereum. We attended a meeting hosted by Cornell’s Initiative for Cryptocurrencies and Contracts that discussed this matter in depth, which we summarize below:
One camp argues that the attacker should be allowed to escape with the funds, DAO tokenholders should take the loss, and Ethereum should carry-on with these hard lessons in mind. Taking this hands-off approach would be akin to what happened with Bitcoin and the infamous Mt. Gox hack. Since Mt. Gox and The DAO are both applications on top of their respective blockchains, vulnerabilities within them are not reflective of the security of the underlying blockchain. Changing the blockchain to save the application could undermine the decentralized trust that the blockchain promises and set a dangerous precedent for future applications that need a “bail-out.” The second camp argues that it’s early days for Ethereum, that this attack on The DAO is too big and would cause too many potential adopters to shy from the system, and thus a hard fork should be implemented to take back the attacker’s funds and redistribute back to the tokenholders. Importantly, this hard fork would cause a permanent divergence in Ethereum’s blockchain, and potentially set the “bail-out” precedent.
ARK believes that the community is certainly caught between a rock and a hard place, as either decision will leave major stakeholders disappointed. For his part, the attacker feels “A soft or hard fork would amount to seizure of my legitimate and rightful ether, claimed legally through the terms of a smart contract.” There’s never a dull moment in this space, and we stay glued to Twitter and Reddit.
5. Alzheimer’s: The Next Blockbuster Drug
Of the top ten leading causes of death in the U.S., Alzheimer’s is the only disease that is exhibiting an increase in mortality rates.1 Moreover, based on ARK’s research, it is likely to be the second most expensive disease to treat after diabetes in 2020.2 Currently, there is no way to treat, or even slow the progression of Alzheimer’s patients. The current standard of care increases life expectancy by a mere three months and treats symptoms of Alzheimer’s. As Baby Boomer’s age and enter the greatest risk profile for an Alzheimer’s diagnosis, ARK expects the growth rate for its treatment to accelerate until sometime between 2025 and 2030.1
Many companies are working towards a treatment for Alzheimer’s. BiogenBIIB has one of the most advanced drug candidates, reducing amyloid plaque build-up in the brain, in Phase 3 trials. Although not fully substantiated, reducing plaque build-up may help improve, or at least stabilize, cognitive functioning. Even if the amyloid plaque correlation to Alzheimer’s is controversial, any safe and efficacious treatment for Alzheimer’s could be the next drug blockbuster.
Stay tuned for an in depth ARK analysis on the Alzheimer’s market!
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.