May 10, 2021: ARK Trades and Storylines

We talked about potential downside last week at length and that showed up in force today. With things continuing to look weak after hours I have no reason to believe Tuesday will be any different. There are structural forces at play that will make it very difficult for the ARK ETFs to move upward in the short term.

On the good news front, there looks to be relief and maybe even a rally towards the end of the month. But for now, the word remains exactly the same: caution. A lot of caution.

About a month ago we talked about the importance of this earnings season. Given the upswing in growth stock prices over the past year, followed by the selloff in February, this season was very much a "prove it" period. With few exceptions the ARK portfolio has not proven that they deserve the valuations they'd been given. We needed exceptional revenue growth and we're seeing good revenue growth.

Part of the overvaluation is driven in part by the ARK marketing machine and the "convergence of five innovation platforms" talk. They are right, those platforms are converging and even accelerating thanks to Covid. But not (yet) at the pace that justified the price of the ARK portfolio. It wasn't just them, all growth had been on a rocket so this isn't ARK's fault, but for sure they're the poster child.

Another part of the puzzle is everyone trying to figure out what the new baseline valuation should be for all stocks, not just growth stocks. We dumped 20% more US dollars into the money supply, naturally asset prices need to inflate around that. Everyone agrees there. What everyone doesn't agree on is by how much and at what ratios. That's where we are, working to converge on a new baseline.

I'm confident we're going to see growth have another big run in the not-so-distant future. It's going to be fun, profitable, and will probably start shortly after the majority of retail* has thrown in the towel.

For those of you that don't know, I do this full time. Every day, six or seven days a week. I'm not going anywhere, up or down. It's certainly my preference for the ARK portfolio to move up as I know most people don't play the short game but some times it's the only game in town... stairs up, elevator down. Either way, this place and the accumulated body of research will always be here if you need to duck out for a bit.

On to the trades...

🐂 Bullish:

• PATH (UiPath) continues to be accumulated with a series of trades that increased the total position size by 15% today.
  
  
• TTD (The Trade Desk) reported earnings before the bell today and got whacked in the session. The numbers were great but not enough to justify the $34bil price tag: $220mil in quarterly revenue, 37% growth from last year. Customer retention was 95%, excellent.
  
  They also announced a 10 for 1 stock split which is sorely needed at the nose bleed price of $500 share. There are pros and cons to stock splits but one of the pros is the more people that trade your stock the more it acts like free advertising since people will talk about it. Regardless of how logical it is, few small investors are willing to pay $500 a share even though it's the exact same thing as ten shares at $50 in ownership terms.
  
  
• DKNG (DraftKings) catches a double bid on accelerating technical weakness. On Thursday they posted results that were good and also raised guidance for the year. The company currently sits at $18bil in market cap on $1bil in revenue.
  
  ARK increased the total position by about 10%.
  
  
• PLTR (Palantir) is a bullish and brave trade right before the earnings announcement tomorrow morning. The total position size rises by about 8%.
  
  
• NNDM (NanoDimension) has seen multiple ARK buys over the past seven days.
  
  
  

🐻 Bearish:

• 👋🏼 SPCE (Virgin Galactic) is a full liquidation from ARKQ. If they got out before the after hours selloff they may have missed the additional 9% hit the stock took after reporting earnings. $330k in revenue was the number by the way.
  
  This is one is something of a head scratcher. We knew this whole time that SPCE would struggle to put up worthy revenue before 2030, that's been public knowledge. So why would ARK buy a few weeks ago and sell now?
  
  Sam Krous put out a note a couple years ago in which he states...
  
  "Even with unlimited resources, the production of commercial-grade hypersonic aircraft could prove technically infeasible. ARK expects that Virgin Galactic’s ambitions will require a doubling not only of the maximum velocity of its airframe but also of its passenger payload ... At maximum velocity, the system would have eight times its current energy and probably would have to adhere to more stringent safety standards."
  
  It's unclear to me if hypersonic travel has become unfeasible but the selling by Richard Branson, Chamath, and ARK all point in that direction. That's just not a pump and dump type crowd.
  
  
• BIDU (Baidu) is also going to be a full exit from ARKW. I wish I could bring better information to the table on this one but as hard as I've looked there is nothing to be seen in terms of news. Not even in foreign language outlets.
  
  
• BEKE (Beke Holdings) and OPEN (Opendoor) see two big sales in an interesting, joint real estate sale. It might be nothing but worth noting these two sales while not seeing any sales of Z.
  
  

🏧 Profit Taking:

Nothing to report.

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*I'm retail as much as you are. If you're not on an institutional desk you're retail.