Stay woke: Is ARKinvest laundering a pitch?

With model 3 sales down, and last month’s stunt launch of a Model Y compact SUV (that looked a lot like a modified model 3) failing to draw much in terms of either excitement or deposits, Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk has pulled out all the stops, and delivered the greatest vapourwear pitch the world has ever seen last Monday at “Autonomy day.”

TSLA has been developing the world’s most advanced autonomous vehicle neural network, complete with custom hardware, and has somehow managed to do it while shrinking capex for 7 quarters, but it’s probably fine. Thanks to @teslacharts for the graphic.

The latest change in direction (or innovation acceleration or whatever) has a hardware swap and a software update making every Tesla in the world a self-driving robo-taxi that earns its owner money, beginning by the end of 2020. Charitably, this sets the company back to the startup phase that producing the Model 3 was supposed to advance it out of. Unsurprisingly, the larger firms that backed this company’s plan to become a popular, modern American car company are abandoning it as the stock price breaks down in a broader market that’s carving out all-time highs.

Above: static chart of ARKInvest’s #1 holding; TSLA. Below, ARK CEO Cathie Wood tells CNBC why

 

Tesla’s sudden and ambitious new look envisions aggressive competition with NVIDIA Corporation (NASDAQ: NVDA) on hardware, with Alphabet’s (NASDAQ:GOOG) Waymo on self-driving software, and with Uber and Lyft on ride-sharing. This… optimistic pitch has been shunned and even ridiculed by most institutional capital, with one very prominent and vocal exception.

Oh, it’s disruptive alright…

Cathie Wood’s ARK Invest, a buy side firm “focused on disruptive innovation,” has been vocal in their support for Tesla, their founder recently going on CNBC to defend a $4,000/share price target on the stock. ARK’s “research,” available through their website to any investor, accredited or otherwise, looks a lot like the type of aggressive tout job that those of us who follow smallcap are used to seeing from Grizzle and The Midas Letter: transparent sell-side assists, designed to school the retail fish and create some sentiment. ARK’s material is working on a far more compelling (and literate) level than anything the Midas Letter throws up, and features bull-case graphics that are every bit as forced and ridiculous as the ones we’re used to seeing form Grizzle’s Minister of Information, Dream-it-Up Scotty Willis.

ARK Invest chart lining up the income of two things you’ve heard of over arbitrary periods.

The pillar of the growth-stock pseudo research is always an un-warranted comparison, made through specious logic. In the chart above, ARK analyst James Wang has bent space time (and the consumer price index) to show TSLA’s revenue growth through the “lens” of Apple (NASDAQ:AAPL)‘s revenue growth over an arbitrary period that it matched. Apple, of course, has a revenue history dating back to the 1980s, and is an entirely different business that doesn’t draw a relevant parallel to Tesla, but only for those of us who lack imagination, so it’s a good thing that ARK is here to help us all come to an original thought.

Give the people what they want…

For those of us who grew up with a telephone in our ears promoting small cap stocks, Wood’s CNBC interview was a throwback. She hit a few bits of nostalgia that have become less frequent as promotion moved to the internet. Downside risks to the stock, such as the ongoing SEC investigation of Musk, and the company’s glaring need to raise capital (and possible inability to do so) are characterized as already baked into the cake. We even got a “the analysts just doesn’t understand this stock yet,” complete with a leading idea that they’re going to any minute now – ARK is going to have research out about the chip Wednesday.

Slide from autonomy day showing the robotaxi potential of a car that that drives itself, lasts 1M miles, and never loses any value. Fundamental Hype would like to remind investors that the only investments truly guaranteed to gain value over time are sponsored blog posts.

Tesla has cultivated a retail shareholder base of novice investors who find the trade and the associated, technophillically charged, “mission to save the planet,” a great deal more appealing than garden variety Wall Street, and it’s hard to blame them. The social media era and gig economy has blessed that class of holder with organic promotional content from people like Hyperchange’s Gali and Now You Know’s Zach and Jesse who are aspiring new media moguls with kool-aid IVs and trust funds, happy to live their first experience with the stock market out loud on the internet. Regular doses of that type of earned (?) media works a charm for keeping the retail shareholders fixed, but they’re bound to go looking for depth or confirmation eventually, and ARK Invest most assuredly speaks their language.

…And leave ’em wanting more

Unlike Midas and Grizzle, who are pretending to be news outlets while actually being mouthpieces for the company and the sell-side, ARK has a credible claim to being a bona fide buy-side investment fund. It’s with that authority that ARK can gain effectiveness and make both retail and institutional traders wonder if they’re looking at this right; if Elon really does have the angle on a leap and a bound. ARK is offering permission to be a bold maverick without having to scare up the guts to be an outcast. It’s a masterful piece of promotion, by an experienced operator who knows that her greatest asset is… well… her assets.

“Whale” Arc-invest vs. the S&P 500. Chart courtesy whalewisdom.com

According to Whale Wisdom, who tracks SEC form 13 flings, ARK Invest manages $1.8B worth of assets for 15 clients as of Dec. 31, 2018. The fund also has a series of “actively managed innovation ETFs” that are designed to track various leading edge tech sectors, along with some more traditional indexed ETFs that track 3D printing and the Israeli startup sector. The research that they publish and the profile that they’ve achieved are surely efficient components of the sales strategy that moves those ETFs, their mutual fund products, and the firm’s advisory services… but that doesn’t feel like its only purpose.

A tinfoil-hat-guided read of Woods’ high-profile Tesla pump would lead one to wonder how many of those 15 clients are Musks or Musk affiliates, and whether or not research dissemination is a service of the firm’s “strategic advisory,” but the truth is most likely a lot simpler: they’re buried in the trade.

“Stock isn’t bought, it’s sold”

ARK reports owning $137.8M worth of TSLA. It’s their number one position, making up 5% of the portfolio. Whale Wisdom estimates their per-share cost at $286.78; that puts them underwater by $19 million on a chart that’s rapidly breaking down as sentiment turns. A bid isn’t going to come and build itself under this thing out of pity. Someone has to sell the idea that this thing is the next Apple, stir up some FOMO and stimulate the greed glands.

Whether Wood’s discretionary control over those AUM are nominal, and a larger investor (and client of the advisory service) is calling the shots, or Wood has put her clients in this sinking ship all on her own, it hardly matters; there’s no passive way out. The notion of a grand future reward for modern day innovation has to be said aloud with total conviction, as often as possible, if it’s to take hold long enough and broadly enough to create a market for this paper.

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About Braden Maccke 68 Articles
Founder and Editor in Chief at Fundamental Hype, a blog about venture stage finance and the media that supports it.

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