We share weekly commentaries with investors on stocks in our strategies that have appreciated or dropped more than 15% in a day during the course of the week. We hope you find this commentary useful.
Zymergen (ZY)
+16%
Shares of Zymergen rose ~16% on Monday after the company announced its acquisition by Ginkgo Biosciences in a $300 million all-stock transaction. The deal should bring Zymergen's automation, software, biological assets, and institutional knowledge to Ginkgo's synthetic biology and cell programming platform ecosystem. Monday’s price increase did not bring Zymergen's market capitalization to the expected $300 million level and could reflect investor concerns that the acquisition will hit regulatory or deal covenant hurdles.Zymergen is a product-oriented synthetic biology company with a strong technological backbone in enzymatic and microbial engineering. Over the past decade, the company has invested heavily in custom, high-throughput laboratory infrastructure to accelerate its design, build, test, and learn (DBTL) cycles.
Shares of Coinbase traded down ~21% on Tuesday following reports that the SEC, as part of an insider trading case brought against a former employee, is investigating the company’s listing of several digital assets deemed to be securities. While bitcoin currently is the only cryptoasset that the SEC and CFTC agree is a non-security, Coinbase maintains that it lists no securities tokens on its platform and has submitted to the SEC a petition seeking greater regulatory clarity on the designation of digital assets.
Shares of Teladoc dropped ~18% on Thursday after the company reported its second-quarter financial results. Although ARK does not make investment decisions based on short-term fluctuations, we believe that other investors are concerned that Teladoc will not be able to deliver on the steep ramp in EBITDA* it is forecasting for the fourth quarter. Based on the annual guidance it reaffirmed for this year, we estimate that Teladoc will have to generate 43% of its annual EBITDA target by way of lower advertising in the holiday quarter. In 2019, Teladoc generated 48% of its annual EBITDA in the fourth quarter, which suggests that its EBITDA assumptions for this year are not out of line.Focusing on the factors that do inform our investment decisions, we note that most key operating metrics in the quarter affirmed our long-term thesis that Teladoc will become a premier enterprise partner for hybrid care delivery in the US and perhaps elsewhere. Utilization and per-member-per-month (PMPM) spending both reached all-time highs, increasing on a year over year basis from 19% to 24% and $2.31 to $2.60, respectively, while total new member additions and chronic care enrollment surpassed analysts’ expectations.Today, 30% of chronic care enrollees use multiple Teladoc products. Illustrating its value to patients and health systems, for example, nearly 67% of new Primary360 members had not seen a physician in the last two years, and another 33% said they wouldn’t have seen a physician were it not for Primary360. Teladoc’s land-and-expand strategy also demonstrated success with several large account up-sells (Primary360 + Chronic Care). Management called out Priority Health, a major US health plan, as a particularly notable win.While consumer sentiment, discretionary spending, and paid search yields have impacted Teladoc’s EBITDA margin, we believe these forces are transient, certainly in the context of ARK’s five-year investment time horizon. Teladoc’s revenue is increasing much faster than its cost-of-goods-sold (COGS) and operating expenses, illustrating significant leverage in its core business.Teladoc is the largest global provider of whole-person, virtual-first healthcare services.*Earnings before interest, taxes, depreciation, and amortization, adjusting for non-cash, stock-based compensation.
Shares of Roku traded down ~23% today after the company missed both revenue and earnings estimates in its second quarter report. Management withdrew full-year revenue guidance, citing a slowdown in the growth of advertising budgets and a pullback in consumer discretionary spending, and lowered guidance for third quarter revenue growth to 3% on a year-over-year basis.In our view, the third-quarter guidance is conservative, as Roku reported more than $1 billion in ad commitments during this year's upfront selling season, representing approximately 16% of upfront CTV ad spend and 5% of total upfront ad spend. The difference between its revenue guidance and upfront results suggests that Roku expects either little-to-no revenue capture from the scatter market for the upcoming TV year and/or a prolonged accounting impact associated with lowering estimates of their advertising clients’ LTV (lifetime value).Despite the disappointing quarter and weak guidance, we believe Roku’s long-term growth story remains intact, particularly because consumers continue to adopt CTV and abandon linear TV. During the second quarter, Roku’s total active accounts increased to 63 million, or 15% on a year-over-year basis, an acceleration from 14% in the first quarter. Total hours streamed also grew 19% year-over-year to 21 billion, while average platform revenue per user increased 21% to $44.10 on a trailing twelve-month basis.Although macroeconomic headwinds are compelling advertisers to tighten their ad budgets, we believe ad spend on CTV should continue to grow as consumers defect from linear TV. According to Nielsen, US consumers aged 18-49 spent 50% of total TV time on streaming during the second quarter, but CTV ad budgets were only 22% of total TV ad budgets. In the May 2022 Interactive Advertising Bureau's 2021 Video Ad Spend & 2022 Outlook survey, 76% of all respondents––87% of the largest media spenders––ranked CTV as the #1 must-buy for media plans, and 73% indicated that they expect a decline in linear TV ad budgets.While macroeconomic conditions could continue to weigh on Roku's short-term financial performance, our outlook for Roku's growth potential remains robust. As the #1 streaming platform by hours streamed in the US, Canada, and Mexico, Roku should continue to lead the advertising shift from linear to digital TV.For further information, please see our recently published open-source Roku valuation model and associated research article. Roku is a leading television operating system and hardware provider that distributes various streaming platforms to millions of households globally.
Shares of Senti Biosciences traded up ~68% today after announcing the resignation of its Chief Operating Officer, Curt Herberts. The company uses genetic logic circuit technology to develop highly precise medicines and cell therapy treatments for a broad range of indications. Its technology potentially could target malignancies by enabling their cells to sense and adapt to the tumor microenvironment.
