Please enjoy ARK Disrupt Issue 140. 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. CRISPR Treats Beagles with DMD
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Led by Eric Olson, the Chair of Molecular Biology at the University of Texas Southwestern Medical Center, researchers stopped muscle-wasting in beagles afflicted with Duchenne Muscular Dystrophy (DMD) using CRISPR technology. Affecting one in 5,000 boys, DMD is the result of a mutation in the gene coding for dystrophin, a protein that maintains muscle integrity and function. Patients with DMD have an average lifespan of 20 years and suffer from respiratory and cardiac issues triggered by muscle wasting. The early research in beagles is promising, as it corrects the root cause of DMD and paves the way towards a cure for DMD.
Dystrophin is the largest human gene, coded by 79 exons, which are protein coding regions of the genome. Olson restored dystrophin production in beagles by directing CRISPR to the mutated exon, snipping it, and relying on the self-healing tendency of animal genomes to repair the damage with new sequences of DNA.
Olson treated four beagles with DMD, two intramuscularly and the other two, intravenously. Beagles treated systemically regained proper dystrophin production not only in their muscles but also in cardiac and neural cells. At the eight-week follow-up, dystrophin production was at levels ranging from 3-90% of normal, significant because typically 15% is considered clinically meaningful.
If this treatment does stop muscular dystrophy in dogs, the stage will be set for experimental treatments in humans. Until then, more comprehensive canine studies will test for safety.
2. China’s Meal Delivery Market Defies Traditional Adoption Curves
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Adoption of new technologies and trends typically follows an S-shaped curve. Typically, attaining $100m in annualized revenue can take years, and $1 billion, more than a decade.
China’s meal delivery market has had an explosive start, trouncing these norms. One of China’s leading meal delivery companies, Meituan Dianping scaled its revenue from zero to ¥21 ($3 billion) in just two years. By contrast, Booking.com took 13 years to reach the same milestone for global hotel and flight bookings.
China’s 800 million mobile internet users, 70% mobile payments penetration, $600 billion restaurant market, and a burgeoning middle class have combined to create an ideal environment for on-demand food delivery. In 2017, Meituan’s revenue surged 160%, catapulting it into one the fastest growing internet companies at scale.
Meituan recently filed for an initial public offering in Hong Kong, with price indications valuing it at roughly $55 billion. China’s large cap internet space has been dominated by three companies, BaiduBIDU, AlibabaBABA, and TencentTCEHY, or BAT. Perhaps Meituan will be the fourth, creating BATM.
3. Financial Activity Seems Poised to Shift To Smartphones
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CiticorpC, US BancorpUSB and PNC BankPNC all tout more than a century’s worth of corporate history, but they have been one-upped by products that didn’t exist ten years ago. As of mid-year, PayPal’sPYPL peer-to-peer digital wallet, Venmo, had more users than those institutions had depositors, trailing only Bank of AmericaBAC, ChaseJPM, and Wells FargoWFC among other banks. Venmo provides cash-like transaction functionality through a smartphone interface. By the same measure, another digital wallet, Square’sSQ Cash App, also is in the top 10 relative to traditional banks, as shown below.
Onboarding and engaging customers virally through peer-to-peer transactions, digital wallets like Venmo and Cash App are the tip of the spear for mobile-first financial institutions that are likely to disintermediate traditional banks. The Cash App already offers direct deposit of paychecks and credit-card-style loyalty points or bonuses for transacting with certain businesses, while PayPal enables merchants to accept Venmo payments at their cash registers.
Peer-to-peer isn’t the only strategy putting traditional financial institutions’ revenue streams at risk. AppleAAPL hopes that its hardware and biometric security platform will attract users to Apple Pay, while Robinhood is using zero-fee trading to entice millennials. To defend against these threats, the banks themselves have partnered and developed an electronic checkbook called Zelle.
Financial activity seems likely to evolve from smartphone-first to smartphone-only over time, leading to a seismic change in the valuations of companies in the financial services sector. In the chart below, more than 90% of the variance in US bank valuations can be explained by customer count. Investors seem willing to pay a median market cap of roughly $3,400 per demand-deposit. Each one of those customer relationships could come under assault in the transition to in-pocket banking.
4. The Pros and Cons of ICOs
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This year, Initial Coin (or Cryptoasset) Offerings, ICOs, have been paying for the speculative activity that sent them soaring last year. According to Onchainfx, the majority has suffered losses of more than 90% since hitting their all-time highs. In more stark terms, a purchase made at an ICO’s all-time high would have to return roughly 1,000% from today’s level to break even.
Even from the best possible perspective, theinitialtoken sales, the returns have been disappointing. ARK’s research suggests that the earliest investors would have suffered losses. As shown on the graph below, 86% of ICOs are below their initial token sale price in dollars (USD), and 81% in bitcoin (BTC).
From another perspective, the results do not seem as devastating. With an equal weight in each ICO at its offering price, an investor’s portfolio would be down only 10%, suggesting that massive returns from a few ICOs were enough to compensate for the 86% that suffered steep losses.
Yet, digging even deeper, the picture darkens once again. Tron, a protocol riddled with controversy, accounted for 1,200 basis points of the -10% return. In its absence, the portfolio would have been down 22%.
5. Is Luckin a Coffee Chain or a Tech Company?
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While China is a tea drinking nation, the combination of changing consumer preferences, urbanization, and rising per capita income has grown its coffee market much faster than the global average.1 Consequently, several international companies such as StarbucksSBUX and Costa CoffeeWTB.L have stepped up their expansion efforts.
Expecting China to be its second largest market, Starbucks is opening a store every 15 hours to hit its 6000 goal by end of 2021. Collaborating with Alibaba across different platforms – Ele.me, Hema, and Alipay – Starbucks hopes to offer coffee to customers whenever they want and wherever they are.
Domestic competition, however, is nipping at Starbucks’ heels. Luckin, a Chinese coffee chain, is growing exponentially thanks to a strategy centered around smartphones and delivery. Offering its own “coffee wallet”, Luckin enables customers to place orders through its app and pay with either WeChat Pay or Alipay. Catapulting from zero to 600 coffee shops in just a few months and leveraging off of the growing delivery boom in China, Luckin aims to increase its store base by ten-fold and overtake Starbucks in four years, as shown below. The race between the two is as much about technology as it is coffee.
6. Waymo’s Cars Still Have Kinks to Work Out…and Perhaps That’s Okay
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This week, The Information reported that Waymo’sGOOGL autonomous cars in Phoenix are encountering technical difficulties, primarily because they are more cautious than the average driver. They are having trouble merging into rush hour highway traffic, navigating around T intersections, and maneuvering around groups of pedestrians.
Because autonomous driving is a new technology with regulatory guidelines pending, Google seems to be erring on the side of caution, with plans for a remote operator network to assist confused autonomous cars. ARK estimates that a remote network will cost roughly 5 cents per mile, accounting for nearly 15% of the 35 cents per mile that consumers will pay on average to ride in an autonomous car. If remote operators do help autonomous vehicles avoid difficulties, customers probably will tolerate slower rides in exchange not only for lower travel expenses but also for more convenience, comfort, and leisure time.
Waymo may have to solve its autonomous vehicle problems with an upgrade to its deep learning capabilities. Google’s deep learning subsidiary, DeepMind, made significant breakthroughs in deep learning in 2016, in time for AlphaGo to beat the world champion at the ancient Chinese game of Go, but not before launching its autonomous vehicle effort. We do know that Waymo uses deep learning to “interpret, predict, and respond” to data, but we do not know how many autonomous tasks are preprogrammed, or deterministic, as opposed to probabilistic.
What if Waymo were to delay the commercialization of its autonomous vehicles? ARK estimates that even if autonomous driving doesn’t commercialize until 2022 and takes twice as long as we expect to gain traction, the autonomous taxi market still should be valued today at more than$1 trillionin the global equity markets.
- International Coffee Organization data ↩
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