The ARK Web x.0 ETF (ARKW ) is enjoying a slew of tailwinds this year. Fortunately, many of those catalysts are viable over the long term, including cord-cutting/streaming entertainment.
Among disruptive and emerging technologies, count streaming entertainment as one that’s benefiting the slew of stay at home orders Americans are dealing with as a result of the coronavirus. As has been widely noted, that’s been a boon for Netflix (NFLX), among others.
“Typically, the disruption of entrenched technologies follows a pattern: slowly, then all at once. In our view, linear TV has hit the ‘all at once’ tipping point,” writes ARK Invest analyst Nick Grous. “Since peaking in 2011 at 103 million, the number of linear TV households in the US has slipped by 2.1% on average per year, a decline that probably accelerated this year in the absence of live sports.”
The Future Is Now
What makes ARKW a more compelling option than passively managed funds is that with the benefit of active management, the fund goes beyond prosaic fares, such as Alphabet, Amazon, and Facebook. For example, Tesla is ARKW’s top holding, and the fund features exposure to the likes of Square and Roku, stocks not often found for size in traditional internet ETFs. Roku is another streaming name as the leader in the OTT space.
“Recently, television advertisers have been disappointed by the dearth of viewers as Major League Baseball (MLB) and the National Basketball Association (NBA) returned to the airwaves,” notes Grous. “According to Roku’s annual cord-cutting survey, only 17% of recent cord-cutters plan to re-subscribe to linear TV when live sports resume in force. Indeed, according to our research, during the next five years, the number of US linear TV households will drop approximately 48%, from 86 million today to roughly 44 million in 2025.”
As an industry, streaming is still in its formative stages and is on the cusp of potentially exponential growth over the next several years. ARK notes that content matters, but quality often does not while pointing out that no one can compete with Netflix in terms of matching viewers to the content they desire.
“If users cut the cord at the rate we anticipate, the $70 billion-dollar US TV ad market could collapse, shifting dollars to more efficient digital platforms,” according to Grous. “This week, Roku and The Trade Desk reported strong growth in their connected TV ad businesses, while most linear TV players like ViacomCBS posted double-digit declines. In other words, linear TV advertising seems to have hit the tipping point, with no return.”