Social Distancing Has Drone Deliveries, Could be Huge for This ETF

With the coronavirus forcing social distancing upon Americans, e-commerce and home deliveries are taking off. Thing is neither delivery personnel nor package recipients want to interact with each other for fear of contracting the respiratory illness.

That’s sparking an uptick in drone deliveries, a potentially efficacious theme for the ARK Web x.0 ETF (NYSEArca: ARKW). When it comes to disruptive technologies, including drones, ARKW is one of the pioneering ETFs.

Disruptive technology is not relegated to certain sectors as it will permeate into all industries in some form or fashion. For example, augmented reality is technology comprised of digital images superimposed over the real world, and its use is primed to drive industry growth–industries like real estate and manufacturing are already putting the technology to use in a variety of ways.

The drone evolution could have a substantial, material impact on some ARKW components, including (NASDAQ: AMZN). That stock accounts for 3.44% of the ETF’s weight.

“ARK previously estimated that, given regulatory approval in the US, an Amazon drone could deliver a package in less than half an hour profitably today for $0.90, cutting the cost of domestic shipping by roughly 90%,” said ARK analyst Tasha Keeney in a recent note.

ARKW Advantages

For investors new disruptive technologies, ARKW is an appealing fund, because it’s actively managed and features exposure to multiple themes, including e-commerce, big data, blockchain, cloud computing and more. That’s a perk because unlike more narrowly focused products, ARKW doesn’t force investors to emphasize a single, isolated concept.

Still, ARKW offers more than adequate leverage to the compelling drone theme.

“Adjusting for our updated assumptions, particularly the efficiency of autonomous flight and the amount of human intervention, ARK now estimates that parcel drones could deliver packages profitably for only $0.25,” said Keeney. “Given frictionless and inexpensive delivery, consumers probably would buy many more goods online, growing eCommerce’s share of retail sales from 14% in 2019 to 60% in 2030, with drones delivering more than half of the eCommerce volumes.”

Other data points bode well for ARKW from a long-term perspective, including increased drone delivery penetration in the low-cost market.

“Pending regulatory approval, revenue from parcel drone delivery could total $113 billion by 2030,” notes Keeney. “ At roughly $4 per parcel today, traditional delivery generates roughly $280 billion in revenues.  ARK believes that as drones cut shipping costs, delivery volumes will increase thanks both to rising eCommerce sales and to consumer preferences for quick, inexpensive shipping.”

For more on disruptive technologies, visit our Disruptive Technology Channel.

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.