ARK Weekly Rollup: April 18, 2021

Monday

We've digested a good chunk of the tech peak from back in February, two months ago. There's now less risk and more appetite. As anticipated the big names are leading the way out.

The name to watch right now is SQ. For a few reasons:

1. Of course, the huge revenue growth it's had over the past year.
2. It's a sneaky reopening play. Square wins when people move around and shop at merchants. It also wins when people go out and then Cash App each other to settle bills, tabs, trip costs, etc.
3. Exposure to Bitcoin. It's going to become more and more important and has been acting quite healthy. Technical behavior and the narrative right now points to higher being more likely than lower.
4. The merchant bank should come fully online later this year.
5. If a profit rolls in for earnings in May the S&P inclusion chatter is going to start immediately. As it currently stands there's no great reason to think there won't be a profit this quarter.

Fortunately for us SQ is the second biggest holding in the Trading Floor Portfolio 🙂  And four out of the top five spots on the leaderboard have SQ as a holding.

The growth vs value story is here but when we look at hard data it's just that, a story, a great narrative. But ultimately, people want to make money. If a stock is working, whether it's growth or value, people will buy it. Plus, the correlation between changes in bond yield and growth vs value returns is highly variable...

This doesn't mean that names won't be sensitive to interest rates. But it does mean that entire swaths of equities do not need to go ignored if and when rates rise. Trade stories, invest in good business.

Friday

Nothing new to report on the trade sheet. Everything is a continuation of trends that started earlier in the week.

Birds-eye view stats for the week...

• ARKQ: 34 trades, 4.88% weight turnover
• ARKK: 32 trades, 4.11% weight turnover
• ARKG: 25 trades, 0.25% weight turnover
• ARKW: 22 trades, 4.22% weight turnover
• ARKF: 16 trades, 2.94% weight turnover
• ARKX: 12 trades, 2.98% weight turnover

COIN (Coinbase) was obviously the biggest mover on the week. The nine trades across ARKF, ARKW, and ARKK accounted for 1.15%, 1.13%, and 1.27% of the weight turnover, respectively, in each of those funds.

TSLA (Tesla) saw 1% of the ARKW position sold off at a profit and .8% out of ARKK. SQ (Square) saw .62% sold off out of ARKK and .45% sold off out of ARKF.

IRDM, BEAM, MASS, U, and EXAS were bought all five days this week. Though none at a huge weight. IRDM was the biggest total weight gain of that group with 5 buys occurring in ARKQ for a .36% weight gain.

Given their market caps, 3D printing was a bit of a hot topic on the trade sheet this week. SPFR (Velo3D) saw 3 buys for .18% of ARKX. NNDM (NanoDimension) saw two for .25% of ARKQ. DDD (3D Systems) saw three buys in ARKQ for .3% of weight.

🐂 Bullish:

• ⭐️ New position TSP (TuSimple) has an odd name for being an autonomous semi-truck company. TuSimple feels like it should be tax software.
  
  TSP isn't a builder of trucks. They partner with truck manufacturers and install their system in the trucks. Current partners include Volkswagen and NAV (Navistar). Making this more of a Waymo than a Tesla.
  
  Their system boasts capabilities of 1,000m vision and 35-second pre-planning i.e. the vision system, which uses LIDAR and hi-def maps, can see a half a mile in the distance and plans the route well in advance of need.
  
  Interestingly, they do have level 4 autonomy trucks on the road. 5,700 from reports. However, those trucks all have a safety driver and will continue to have a safety driver until 2024 according to the company.
  
  The IPO comes in at a $8.5bil valuation on $1.8mil in revenue. ARK soaked it up in a big way. The trade in ARKK was one of the top 20 trades by both number of shares and dollar value that we've seen in the past 12 months.
  
  By number of shares purchased the most Cathie's Ark has on record for a single buy is PLTR in ARKK on February 18 for 5.245mil shares, which is about $140mil in spend. Today's TSP purchase across ARKQ and ARKK came out to an estimated $117mil assuming they bought at the middle of the trading range.
  
  To make room in ARKQ for TSP, IRDM, and U, sizable chunks of GOOG and LMT were let go. With all the trades in ARKK the swap is murky which makes pointing at other trades as a signal nothing more than a guess. ARK now owns almost 3% of the company. I would imagine this makes them the largest institutional holder, at least top 5... from Thursday, April 15
  
  
• U (Unity) was mentioned on the ARK quarterly webinar this afternoon. In the webinar--I believe it was Nick Grous--mentioned Unity as a detractor from the ARKW portfolio. His stance is that the soft ban of IDFA by Apple is likely going to weigh about 3% on the revenues of Unity due to the fact that U runs an ad network inside it's games.
  
  While this definitely did weigh on the price, it's almost certainly not the only reason for the poor performance this quarter. Not taking anything away from Nick. It's a hard job to explain why one of your key holdings performed poorly in this market without saying "well, have you seen the rest of tech?".
  
  No real news on U, so this appears to be continued accumulation on weak price action... from Thursday, April 15
  
  
• COIN (Coinbase) is looking more and more likely to become a top 10 position. And, oh my, are there opinions on the valuation everywhere. In situations like this--if you need to establish an opinion--usually the best thing you can do is keep it simple.
  
  1. Coinbase is almost a household name. Brand recognition means a lot.
  
  2. They've never been hacked. In an industry rife with security problems that's a big deal. It's also one that will cause other players to shy away. Imagine the poor press if JP Morgan setup a crypto custody and then got hacked.
  
  3. This is the beginning. We don't know all the of market opportunities yet. Margins will eventually compress. But in a true blue ocean, betting on the undisputed leader is not an unwise move.
  
  To me this is more of a Standard Oil situation than a Tesla one. We know Tesla's competitors and what vehicles are and can be. When Standard Oil rose to power we had no idea what all the uses for oil would become.
  
  That's a big comparison which is more to highlight the concept than provide a direct analogy. I do not think Coinbase will be the Standard Oil of cyrpto. Though it is an interesting thought.
  
  What's wild? ARK already owns more than 5% of the entire company. And for a side note... Coinbase chose Nasdaq because the NYSE couldn't give them the COIN ticker symbol... from Thursday, April 15
• COIN (Coinbase) is the story of the day. Not only did ARK come in with three buys, they came in with three big buys. A total of $250-$325mil was spent on these three positions. Immediately this rockets COIN to the 60th combined weight rank across all funds.
  
  This is easily the biggest one day addition we've seen over the last year. U (Unity) was the last big add and it went into two funds, ARKK and ARKW at an initial weight of .45% for each. Today U sits as the 13th highest weight rank across all funds. If COIN follows the same path it's going to easily become a top 10 holding.
  
  The numbers are exceptional at $1.8bil in revenue for Q1 of 2021. Net income was about $750mil. If--big if--those numbers hold that's a booming tech company that trades at about 8x sales. Adding that, COIN finished the day at a $61bil market cap. From a growth/tech perspective, this looks like it might be undervalued 🙊Just think what it would have traded to three months ago.
  
  The revenue breakdown of custody vs transaction is nowhere to be found, it's not even in the S1. We do know that Coinbase currently custodies about $230bil in crypto assets. Which is something like 11% of the entire capitalization of crypto. $122bil of that is institutional, up almost 3x from the beginning of 2020 when it was $45bil.
  
  By default I avoid IPOs. There's too much noise and salesmanship that makes it nearly impossible to determine what price the market will settle on. However, looking through the numbers a bit more today after the close turned me around, this doesn't seem like a wild price.
  
  It all rides on the back of how crypto does. A now fully legitimate asset class that isn't getting smaller.
  
  It looked suspiciously like INTU (Intuit), PYPL (PayPal), and ICE (Intercontinental Exchange) were sold out of ARKF to make room for the new kid on the block. ARKW and ARKK got most of their cash from Tesla profit taking... from Wednesday, March 14
• EXPC (Blade) is not on the trade sheet and this is more neutral than bullish but they did announce a purchase order for 20 eVTOL from BETA Technologies. The ALIA version, deliverable in 2024, was also ordered by UPS for 10 in the cargo configuration.
  
  Blade CEO Rob Wiesenthal: “Blade is laser-focused on its transition from conventional rotorcraft to Electric Vertical Aircraft. The ALIA’s extremely low sound footprint, coupled with its zero emissions design, will enable us to reduce the noise and environmental impact to the communities surrounding the existing heliport and airport infrastructure we currently use. ALIA is a full-scale EVA flying in piloted configuration almost every day. The team’s progress is formidable. BETA’s scheduled delivery beginning in 2024 is ahead of our current projected deployment of EVA in 2025."
  
  Assuming we have enough batteries for everyone, it appears that 2024-2025 will be the year of the eVTOL. Joby and Archer have also said either 2023 or 2024 but given the nature of brand new industries a conservative estimate, while boring, is probably practical... from Tuesday, March 13
• DKNG (Draftkings) sees a double buy with pick ups in ARKK and ARKW. While it didn't move the stock price today there have been reports that Canada is getting close to relaxing regulations on single-event sports betting. An area DKNG can move into quickly should the opportunity present itself as they're already established as the leader in daily fantasy in the country... from Monday, April 12
• TDY (Teradyne) is not on the trade sheet but is seeing positive moves on the back of the FLIR deal passing antitrust inspection around the globe including Poland, Germany, and South Korea.
  
  In addition to that, FLIR announced a contract win from DARPA to develop a new high-tech fabric. While the contract is small relative to the size of TDY, it's a foot in the door should the development yield intellectual property.
  
  TDY is the 13th largest holding in ARKQ. Over the past 10 days it has convincingly broke above it's pre-Covid highs and trades at about 4x 2020 sales... from Monday, April 12
• NVDA (Nvidia) is not on the trade sheet but they're holding the NVDA GTC conference this week. Already announcements have moved the price significantly higher.
  
  First, they stated that numbers were ahead of original first quarter expectations. Interestingly... "the company also raised its first-quarter revenue estimate for its new CMP product for industrial-scale cryptocurrency mining to $150 million, up from $50 million previously expected". That's $600mil annually, give or take, depending how cyclical that business line is. Which is alone interesting but says a lot about the demand for mining equipment, a bullish indicator for crypto in general.
  
  Second, they announced an avalanche of new products which are worth browsing through. Two things to mention there...
  
  One, Nvidia Jarvis is moving into full release after a limited release last spring. Jarvis, as the Marvel inspired name implies, is a conversation tool that promises 300ms or less latency. 400ms is known as the Doherty Threshold, the point at which a human can notice lag and attention starts to slip.
  
  While not a hard and true number there is plenty of evidence that says the longer you have to wait the more likely you are to move on. Anecdotally, I was talking to a Microsoft Bing engineer--hard to believe but true, there are only four core Bing** engineers in all of Microsoft--a few weeks ago and he was tasked last January with shaving 10ms off Bing search query response times because Microsoft noticed a significant drop in user stickiness for every ms of lag.
  
  A whole year of your life for 10ms, think about that.
  
  Two, is that NVDA is an AI company now. Not that this is jarringly new but if you comb through the 259 pages of blog posts from the company you find that AI has far outpaced mentions compared to graphics or anything else. Also the entire first day of the conference--also the day of the keynote--saw just one blog post released on graphics out of fifteen total. SDGR even got a mention as a new drug discovery partner... from Monday, April 12

🐻 Bearish:

• TEAM (Atlassian) took a 50% position cut in ARKW. It is a profitable position for ARK coming in with a cost average of $82 vs this $230 sale price. But a sale here means one of two things. Either it won't double again in five years or something else will outpace it. And from the trade sheet this appears to be a position swap for ZM and PTON... from Monday, April 12

🏧 Profit Taking:

• TSLA (Tesla) like clockwork. Same story that was laid out for SQ yesterday. Adept trading by ARK as Tesla going back up was one of the easier bets to make during the February correction. This trade was basically selling off the two purchases made on February 23 and March 3. Both days saw lows of $650 making this a 15-18% profit.
  
  ARK may not be the best traders in the world, but we wouldn't know it because no other professional firms show their work like this. Either way the TSLA and SQ trades of the past two months are a clinic being held in public... from Wednesday, March 14
• 👋🏼 TSM (Taiwan Semiconductor) is being closed out around the board. This time out of ARKF. While there is likely a rotation into higher conviction names aspect to this I can't help but think of the China-Taiwan geopolitical risk. Recent comments from China about the reunification of the two countries brings back recent memories of the Hong Kong takeover.
  
  There's little doubt in my mind that China will eventually make a full attempt to reunite the two. When that will be is hard to say but if and when that does happen it's going to be major, negative world event that will rock every exchange... from Tuesday, March 13
• SQ (Square) sees a sale in ARKK. This is just plain profit taking after astute trading during the most recent correction. ARK knew full well they weren't going to hold all the shares on the way up and that they were buying beneath value. Now they're banking cash after a nearly 40% rise in one month. There is nothing bearish about these SQ sales. Hats off to ARK... from Tuesday, March 13
• SI (Silvergate Capital) came within a few dollars of all-time highs today likely leading to ARK selling a chunk of shares to manage the weight of the position. This has been a highly profitable position for ARK at a $78 cost average against a $178 high price today.
  
  It's currently the second highest weight rank in ARKF and 49th across all funds... from Monday, April 12

🔥 From the Trading Floor:

• ARK's Theory for ARKX From the Quarterly Call
• PacBio in Single Cells - deep and not overly active but packed with good information courtesy of Rahul Vangala