Please enjoy ARK Disrupt Issue 134. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. Why Should Wall Street Care About Twitch?
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When AmazonAMZN acquired Twitch Interactive for roughly $1 billion in August of 2014, Wall Street responded with a shrug. Twitch was Amazon’s third largest acquisition after Zappos and Whole Foods, and yet on earnings calls since, then analysts have asked management about video game broadcasting only twice, the last time in the fourth quarter of 2015. The lack of interest in Twitch, the platform for eSports, the fastest growing category in live broadcast, is remarkable.
Source: Twitch Tracker
During the past year or so, engagement on Twitch inflected, as shown above, and now is growing more than 50% year over year. Celebrities have begun participating on the platform, with top video game broadcasters known as streamers pulling in millions of dollars in annual income. At the same time, new games – notably, Fortnite, partly owned by Tencent – have provided compelling broadcast opportunities, as shown below. Indeed, Twitch’s viewership in June approached 800 million hours, or 9 billion hours at an annual run-rate.
How much could 9 billion hours of viewership be worth? A lot!
NFL broadcast rights provide some good perspective. The NFL enjoys roughly 6 billion in hours viewed annually,1 and in 2013 it sold nine years of broadcast rights for roughly $40 billion.2 We expect Twitch’s viewership to be double that of the NFL by next January and to double again within our five-year investment time horizon. What would broadcasters pay for the perpetual rights to four NFLs, especially if they didn’t have to ship crews and cameras all over the country and could monetize the content more efficiently?
Video game streaming is linked to monetization in a way not possible for traditional sports. Viewers pay subscriptions and sometimes tip individual streamers—from which Twitch extracts a platform fee—and, in real time, streamers can thank their viewers for contributions. On their channels, streamers often interact with viewers, sometimes taking direction from them. With stronger social and economic network effects, Twitch’s engagement and monetization should be able to top that of traditional broadcast channels.
Of course, the playing field is not completely clear. FacebookFBrecently announced a foray into the space and YouTubeGOOG offers similar live-streaming capabilities. TencentTCEHY occupies a seemingly unimpeachable perch in Asia, but in the rest of the world, as of now, the race is Amazon’s to lose (or win).
2. Xilinx Acquires Chinese Deep Learning Chip Startup DeePhi
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Interestingly, an American firm is acquiring a Chinese company that specializes in artificial intelligence (AI). Beijing based startup DeePhi has been acquired by XilinxXLNX, the market leader in programmable chips called FPGAs (Field Programmable Gate Arrays).
Stanford and Tsinghua grads founded DeePhi, pioneering methods to simplify computation in neural networks to enable complex image classification and natural language processing on Xilinx FPGA chips. As an early investor, Xilinx helped DeePhi adapt its technology for automotive applications.
This deal potentially is a win-win. DeePhi enjoys a financial exit just two years after its founding, and Xilinx acquires software technology that instantly converts its powerful FPGAs into chips deployable for AI. Based in Beijing, DeePhi also gives Xilinx an opening to China’s vast market for AI and surveillance products.
3. Opera’s Perfect Pitch Could Create a Gateway for Cryptocurrency Cross-Border Payments
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Earlier this month, browser company Opera filed for a $115 million initial public offering (IPO), highlighted by Bitmain – the dominant bitcoin mining machine manufacturer – agreeing to purchase $50 million of shares. In tandem, Opera announced the launch of a cryptocurrency wallet native to its mobile browser.
The strategic relevance of this move is tied to Opera’s market dominance in Africa. As one of the world’s largest browser providers, Opera services 100 million users in Africa, capturing half of the continent’s market share. Based on these recent announcements, ARK believes that Opera has enormous potential to become the gateway for cryptocurrency cross border payments in Africa, and perhaps elsewhere.
While Safaricom’s MPesa has enabled peer-to-peer (P2P) remittances and mobile payments locally in various countries in Africa, cross border payments remain wildly inefficient and subject to fraud.
Validated by Bitmain’s direct investment, Opera’s decision to move into the crypto-wallet space paves the way for a revamped payments infrastructure and a standardized exchange across markets in Africa.
4. Will Nigerian Regulators Continue to Reverse Course and Encourage Financial Inclusion?
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While many countries are spearheading ways to reach the World Bank’s goal for financial inclusion, Nigeria has fallen behind. Despite mobile penetration of 80%, only 6% of Nigerians use phones for transactions, compared to 73% of Kenyans.
Nigerian regulators have restricted the issuance of the mobile money licenses which, elsewhere in Africa, have been critical to financial inclusion. Indeed, between 2014 and 2017 the percentage of banked adults in Nigeria dropped by almost 500 basis points to 39.4%, which is well below the African average as shown below.
Efforts are underway to correct this problem. Nigeria now allows people to open bank accounts with their mobile phones. Fidelity Bank, for example, is offering micropayment functionality and is opening its platform to an additional 3.9 million customers. Nigeria also is taking lessons from India and is creating a centralized identity verification system which should create more access to various financial products.
5. Alphabet’s Project Loon Addresses a $130B Opportunity
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This week, Alphabet’sGOOGL Project Loon signed its first commercial deal with Telkom Kenya, a local telecom operator, for internet service delivery by balloon. Compared to its first generation, Loon’s balloons now can serve 10x more people and can hover and cluster over specific geographies. In its original plan, Loon’s balloons were designed to circle the earth.
While Google has said that Loon should be able to deliver internet service for $5 per month per user, ARK estimates that it could offer even lower prices, say $4 per month. At that rate, if Loon were able to deliver internet access today to everyone in the world with enough income to afford it, its subscription revenue could approach $130 billion, roughly equivalent to estimates for Alphabet’s total sales in 2019.3 More realistically, Loon will share this market with other forms of internet delivery, such as low earth orbit satellites, but Alphabet’s opportunity is vast nonetheless.
6. CRISPR’d Tumor Cells Can Kill Cancer
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Using CRISPR technology, a group of researchers at the Brigham and Women’s Hospital and Harvard Medical School harnessed basic principles of cancer biology to turn tumor cells against themselves, killing the source of malignancy. For more than a decade, scientists have observed that metastatic cancer cells – “rehoming cells” – eventually return to the cancer’s tissue of origin.
In the most recent study, scientists exploited this tendency by re-engineering rehoming cells to attack and kill those in the tissue of origin. They extracted metastatic brain cancer cells in mice, added a tumor-identifying receptor to the cell surface using CRISPR, and transfused these cells back into the mice, hoping that they would return to the tissue of origin and induce cell death. To ensure that engineered tumor cells would not create new tumor cells, scientists encoded them with a kill switch to be activated upon the delivery of a separate drug.
While metastatic brain cancer is 100% lethal in mice, 90% in this study survived for as many as three months after treatment. Based on early stage studies, rehoming cells do seem to provide a new mechanism of action in which cancer cells can be harnessed to kill cancer.
- ARK Invest estimate ↩
- https://www.forbes.com/sites/kurtbadenhausen/2011/12/14/the-nfl-signs-tv-deals-worth-26-billion/#68ad1cd122b4 and ARK Invest estimates. ↩
- Sources: ARK Investment Management LLC, https://www.itu.int/en/ITU-D/Statistics/Documents/facts/ICTFactsFigures2017.pdf, http://www.worldbank.org/en/topic/poverty/overview,https://finance.yahoo.com/quote/GOOG/analysis?p=GOOG ↩
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.