Please enjoy ARK Disrupt Issue 135. 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. Electric Scooter Companies Are Booming and Riding for a Fall
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Dockless electric scooters are taking parts of the country by storm. They have become notorious for littering cities, particularly blocking sidewalks and ending up in obscure locations.
Bird, the most well-recognized scooter company, hit a $2 billion valuation in a matter of months as VCs recognized the pricing power in this greenfield space. Unlike Uber and Lyft, which had to compete with taxi prices, Bird has been able to price its service at $1.63 per mile while, according to ARK’s calculations, its cost is roughly $0.32.
While a network effect is possible after flooding a city with scooters, both the barriers to entry and the switching costs are low in this space. As a result, the price of scooter transport is likely to collapse as other companies enter and attack the market, much as has been the case with dockless bikes.
While many dockless scooter startups may go belly-up, ARK believes that the electric scooter form factor is here to stay, as costs will drop toward $0.18 per mile, as shown in the chart below. According to our research, the biggest cost factor in scooter unit economics is the crowdsourced labor force which charges scooters and repositions them in convenient locations. While the electricity necessary to charge a scooter is in the single digit cent range, Bird pays $5 today, effectively overpaying for the relocation of each scooter. This cost should decline as more users join the ecosystem and require less of an incentive to join the distributed labor force.
Declining battery costs are enabling a Cambrian explosion of mobility options, scooters the latest among electric vehicles. The costs associated with internal combustion engines in the mature auto market are not falling. With declining costs and an increasing number of use cases for energy storage, the battery is one of the most important general purpose technology platforms evolving today.
2. Pick Up Your Groceries in an Autonomous Car
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This week, WaymoGOOG teamed up with WalmartWMT to offer autonomous rides. Walmart customers will be able to order groceries from Walmart.com at a discount, and Waymo will ferry them to and from Walmart to complete the shopping process. Reportedly, Walmart is footing the bill for this project.
Waymo also announced that it is extending its relationships with AutonationAN and AvisCAR, offering temporary transportation while vehicles are repaired and providing last mile service for car rentals. These deals will launch Waymo’s cars into their first commercial services.
Walmart now has relationships with both Google and JD.comJD for the delivery of groceries in autonomous vehicles, including drones. With well-defined routes to and from each store, the Walmart relationship could pave the way for Waymo to travel over the more complicated routes associated with dynamic ride hailing services. ARK sees this deal as a win-win for both companies.
3. Social Media Companies Reset Expectations
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For the first time, both FacebookFB and TwitterTWTR lost users in the same quarter. Facebook lost one million monthly users in Europe while Twitter lost about the same in the US. Investors were not amused—both companies’ stocks fell by 20% after earnings, and obituaries for Facebook once again made the social media rounds.
Mr. Market does not always get the plot right immediately. Facebook and Twitter are not losing users organically. Instead, both are making deliberate efforts to rid their platforms of trolls and fake accounts and to comply with GDPR, Europe’s new privacy regulations. While slowing growth and hurting profitability in the short term, these actions also will create a better user experience in sync with the expectations of the public and regulators in the long term.
Astute observers such as author and early Facebook employee Antonio García Martínez have remarked that its efforts to staff up and focus on content moderation will increase Facebook’s moat. Startups cannot afford to do the same.
Although it has guided for a steep deceleration in revenue growth, we believe Facebook still has significant room to grow and return to upside surprises, especially as TV advertising gives way to the digital world. Supporting this outlook, Google continues to grow its desktop search business nearly twenty years after its launch. With its constellation of applications, Facebook should continue to evolve, finding new ways to serve ads and reach millions of new users in the years to come.
4. Bitmain Aims to Be More Transparent
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Bitmain, the largest Bitcoin ASIC design and miner manufacturing company, has begun exploring ways to increase transparency in its mining and shipping practices. Miner centralization remains a risk to Bitcoin’s long-term viability, as a single entity controlling majority hash power would compromise the security and credibility of the Bitcoin blockchain. With the two largest Bitcoin mining pools and 70-80% of ASIC chip servicing, Bitmain has been criticized for dominating the mining ecosystem and risking Bitcoin’s sustainability.
In an attempt to appease the community and ensure best practices, Bitmain has disclosed the following efforts to promote transparency: reporting its own mining activity as well as the shipping and volume associated with new miners, prohibiting secret mining, and avoiding empty block mining. In its latest report, Bitmain revealed that its own mining accounts for just 4% of Bitcoin’s total mining hash power, but it has not been audited and its assertion seems somewhat questionable. Nonetheless, its focus on promoting mining as a level playing field is a step in the right direction.
5. U.S. Personal Loans Are Soaring, Increasingly Facilitated by Fintech
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A recent Transunion report points to an acceleration in the growth of personal loans, as opposed to credit card debt, in the US. In 2018, personal loans hit a new high of $120 billion, a 71% increase from a decade ago, led primarily by fintech lenders such as Lending ClubLC, Prosper, Avant and Sofi. ARK believes that with advanced AI models and a deeper understanding of their customers, fintech companies are lending increasingly to the underserved market and expanding the market.
The graph below illustrates this trend. Fintech firms now account for one-third of personal loans, a significant increase from just 1% in 2010. We believe consumers are consolidating high cost credit card debt into personal loans, and fintech firms are offering them the best deals based on superior insights.
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.