The coronavirus pandemic hastened a new era of internet evolution, but not all internet exchange traded funds are up to the task of being ahead of the curve.
The ARK Next Generation Internet ETF (NYSEArca: ARKW) is, however, because it goes beyond the confines of the standard funds in this category. While ARKW is dependent on stocks like Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:FB), the fund benefits from themes that those companies (and others) are driving.
Although its lineup is concentrated, ARKW is positioned to benefit from themes with long runways for growth, including e-commerce, the internet of things, and social media, among others. Those tie into an important long-term catalyst of the ETF: people spending more time online.
“The COVID-19 crisis accelerated the shift from offline to online activities. We estimate that on average in 2021, internet users spent 38% of their free time online and 62% offline. By 2030, we expect these averages to flip, with users spending 52% of their free time online and 48% offline,” notes ARK Investment Management analyst Nicholas Grous.
Not surprisingly, social media is a big driver of people spending time online. As Grous notes, there are six social platforms that have a billion monthly users and nearly 30 that have 100 million monthly users. ARKW taps into that theme with stakes in companies such as Twitter (NYSE:TWTR) and Nextdoor (NYSE:KIND).
ARKW’s exposure to social media companies and other internet platforms is a potential plus for investors due to impressive expectations for long-term growth in online advertising.
“As traditional advertising declined during the Covid-19 pandemic, digital advertising gained share. By the end of 2021, global digital advertising totaled roughly $440 billion, or 62% of the total advertising market,” adds Grous. “We believe the global digital advertising market will grow at a 11% compound annual rate over the next eight years, surpassing $1 trillion in expenditures by the end of 2029.”
Digital gaming is another internet concept that’s still in its early innings, and ARKW has exposure to it via Roblox (NYSE:RBLX) and Skillz (NYSE:SKLZ), among others.
“Fortnite exemplifies the massive shift to social gaming. Launched in 2017 as a first-person battle royale game, today Fortnite holds virtual concerts for millions of players and has dedicated spaces in which users can hang out. We estimate that video game content and services will grow at a 15% compound annual growth rate from roughly $200 billion in 2021 to more than $400 billion by 2026 with the rise of ‘virtual worlds,’” concludes Grous.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.