Cathie Wood, CEO of ARK Investment Management, joined host Melissa Francis, former CNBC, MSNBC, Fox Business, and FOX News anchor, to discuss her views on Tesla, Twitter, and Disruptive Innovation.
Melissa Francis: Welcome everyone today. We’re here to talk about Magnifi by TIFIN, a marketplace where you can harness real time proprietary data to help individual investors and financial advisors find, compare and buy investment products like stocks and ETFs mutual and model portfolios to grow and preserve your wealth. I’m Melissa Francis. I know just a little bit about this subject matter. I’m a former CNBC MSNBC Fox business and Fox news anchor. And you will remember if you’ve watched us before we talked about the best crypto investment strategies with Anthony Scaramucci, the best bond with the bond king himself, Jeffrey Gundlach and the best private equity strategies with Marty Nesbitt. Now we have a very special guest that I am super excited about to talk about stocks, um, and everything hot out there, Kathy wood. She’s the CEO of arc. She is a board member of TIFIN, which is Magnifi’s parent company.
Melissa Francis: Cathie, thank you so much for being here. I wanna drill down on your latest blog because there were so many good nuggets in there, and I found some of them kind of counterintuitive. So I wanna get into those, but first, if I could take you to the hot story of the day, which of course is Twitter. And I wanted to ask you, um, looking at where things stand today, and I know as fast moving, it keeps changing, but, um, if you were Elon Musk, what would your next move be? What would you do from here?
Cathie Wood: Well, he’s got a $54, I guess it’s $54 and 20 cent offer out there. So I think he’ll buy it his time. It will be interesting to see if other bidders, uh, show up. Uh I’m uh, I’m hearing that there are some, so, so let’s see. Not, not quite sure it’s still quite fluid, right?
Melissa Francis: Yeah, no. And he says that if this doesn’t work, he has plan B. What do you think that is?
Cathie Wood: Goodness, I don’t know if it would be something a little more hostile. Just I have no idea, you know, uh, Elon Musk is, is, has his own mind and, and, and is, uh, and I’m sure thinking very creatively about this,
Melissa Francis: If he does succeed and you, or him again, what would you do with the company? What do you think that they need to correct?
Cathie Wood: Well, one of the things that, uh, I think has hampered Twitter is its advertising model and this is what scares, uh, uh, analysts out there. Oh my gosh. You know, uh, he’s going to upend the advertising model, uh, because advertisers don’t like to be, uh, to have their ad shown next to questionable content, which is something different for everyone, right? Uh, and so this idea of perhaps a subscription service is a possibility or a tipping service, uh, but certainly open sourcing. The algorithm will be the first thing he’ll do, uh, so that, uh, there’s transparency associated with what is and is not censored.
Melissa Francis: So do you think that’s a good or a bad thing for the company? I mean, it might be a good thing for freedom of speech or however, may you, you may look at it politically, but if you were a shareholder, is it a good idea for him to get that out there? So everybody knows how the algorithm really works?
Cathie Wood: Well, I think even Jack Dorsey thought that Twitter was beginning to tie itself in knots over the censorship. And, so he was trying to figure out what can we do to overcome this monster really? And, uh, so I think they do need to do something. Um, uh, many people would describe what’s happened to Twitter as, uh, becoming a cesspool. Now we don’t think that we use Twitter. Uh, it’s, it’s become quite important to our business as have other social media, uh, platforms. Uh, and so we know that we can unfollow someone, uh, that is hampering our research or our ability to engage with others in a civil way. Um, but I, I think that, um, I think that even Jack was saying, okay, we need a change. We have to change what we’re doing. And I think he and Elon probably are aligned, uh, and this idea of an open source algorithm, a shift away from the advertising model towards something, uh, more or subscription based and, you know, more transparency. I mean, uh, ARKK is radically transparent. Everything we do, uh, is transparent and it has done nothing but help our business. Sure. You’ve got, uh, people out there who are, um, denigrating our work. Uh, but we know those people as, as we drill into what they’re saying, they’re not doing any research. We’re really interested in engaging with people who are doing real research. Uh, and I think transparency, uh, would make that make, uh, our experience with Twitter even better.
Melissa Francis: Yeah. The fact that you’re not afraid to engage like that and to, you know, hear from those who might oppose you shows how confident you are about what you’re doing. You have to wonder about a company that wants to hide what they’re doing. Let me ask you though, on, on the Twitter front, um, so what do you think the company’s worth? I mean, I know I wanna talk to you about your Tesla target, but as you look at what Elon’s willing to pay, um, what do you think if you had to put a price target on the stock two years down, or four years down the road, what would you say?
Cathie Wood: Well, I think there’s so much uncertainty right now that I couldn’t give you one. Based on their existing model, our compound annual rate of return expectation, uh, for Twitter is, uh, roughly 25%. Now, their model’s going to change. There are going to be a lot of dislocations. We have a lot of very short term oriented shareholders who are probably now have moved into Twitter to make a fast buck, 54, uh, 20, $54 and 20 cents. Uh, but the model’s going to change. And so we will revisit once we understand what’s going on, we will revisit the upside to the model. And we do think that, uh, uh, a lot can be done to improve the model. So, it may take more time than even our five year investment time horizon.
Melissa Francis: So, if Elon Musk does get control of the company, would you adjust that upward? Do you think it has more potential with him in charge or would it be more of a wait and see, how would you feel?
Cathie Wood: We probably would have more confidence in the platform, uh, would want to hear what Elon, um, uh, has in mind in terms of perpetuating the platform. Uh, I’m sure he does not want to run it as a charitable or organization or a nonprofit. So we’d like to see how he thinks it could become a, a, a, a very transparent, but also self-sustaining, uh, model. And, you know, he’s very creative and I think that it is our global town square and, and that a lot of people would miss it. Uh, so, uh, I think there would be a lot of people, very supportive and very open to his ideas.
Melissa Francis: So putting politics aside entirely, and just thinking about pure money as a shareholder, you would be in favor of Elon Musk taking over.
Cathie Wood: Well, I do think that, uh, the route Jack was going, which we supported, was opening up the algorithm or open sourcing it in some way. Um, and, and so I think this is a continuation of that. We also think one of the reasons we have held Twitter is because we believe, uh, it is a verification platform, you know, the little blue check, and we believe that it could become a verification platform for NFTs as well. Uh, and so, you know, there are a few call options here, and, uh, there are verification algorithms we think are well respected out there. And, uh, so I think, uh, Elon would also build on that.
Melissa Francis: Wow, fascinating stuff. That’s great. I’m sure you just made some news there without question before we stray too far from Elon, cuz he is such a fascinating character. I know that you put a 20, 26 target on Tesla of $4,600. How did you work that math and how do you feel about that call?
Cathie Wood: Yes. Well we, as we have been building out the Tesla model for years, of course, and uh, each year we publish, uh, uh, our five year projection. We started doing this, I believe in 2019, uh, when we believe Tesla so misunderstood. And uh, I think our projections were so much closer to the mark, uh, for, for 20 22, 23, 24, uh, that, um, we, we, we felt that open sourcing it and, and continuing to, um, update people would help them understand number one, how much share, uh, Tesla has and is keeping in the electric vehicle space. How, uh, how, um, capital efficient the company is, we’re even shocked at how capital efficient it is, uh, more efficient than any other, uh, company out there. Uh, we keep, uh, a constant, um, um, eye on batteries and battery costs and, and battery technology. So we like to update that, but I think our biggest assumption changes over the last few years have been market share, keeping a lot more than we expected ability to scale.
Cathie Wood: Uh, uh, in fact, Elon is saying, he’s now a manufacturer of factories. That’s one of their core competencies. And we agree with that. Um, capital efficiency, we’ve been shocked at how good it is and you know, uh, uh, their ability to increase their gross margins over time, much, much higher than I think most people might have anticipated. And in our five year forecast, whereas, uh, last year we, we had a 50 50, uh, shot at autonomous being a now, as you can see from the model, we put a 25 percentile, 75 percentile, uh, probabilities, and we have price targets associated with those sort of the, the, the low end and the high end. Uh, we know now that autonomous is possible because cruise automation is autonomous in San Francisco. A big city, Waymo has done it in Arizona. So it is possible. Uh, we no longer have to answer that.
Melissa Francis: Yeah, I can’t wait to not drive my kids around, but I hear you. I, I wanna ask you specifically about a, so tell us a little bit about the people you have working for you. I find it really fascinating.
Cathie Wood: We give our research away, uh, not because we are altruistic, although we do want to educate not just investors, but parents and grandparents about how the world is changing and how rapidly is it’s changing and how to keep their children and grandchildren on the right side of change. And even for adults, how to retrain so much is going to change because of the five innovation platforms, genomic sequencing, adaptive robotics, energy storage, artificial intelligence, and blockchain technology. And those platforms themselves, they’re all growing at exponential rates and they are converging. So it’s one S curve feeding another S-curve. And we want people to understand that we want not just investors and registered investment advisors, uh, but also as I mentioned, uh, the sell side and the buy side, you know, they’re used to very short term time horizons and they haven’t until recently been as focused on these new technologies, they’ve been much more focus on benchmarks and how to beat benchmarks. They haven’t been thinking as much about the future and, uh, and the technologies that are going to transform the future. So we give our research away because we want to engage with and become a part of the communities that are innovating. And I feel like we’ve done that. So, yes,
Melissa Francis: If I could just jump in, I mean, cuz this has been a very successful strategy for you, especially during the pandemic and the lockdown economy. Um, it’s been tougher obviously more recently and you know, you’ve seen a lot of correction within the portfolios and you know, you’ve taken a lot of criticism from the outside. I would ask you, first of all, is there any part of the criticism that you feel like you’re receiving that rings true?
Cathie Wood: So let me put in perspective what has happened over the past five years, we have a five year investment time horizon. So we’ll start with the past five years and then we’ll look forward at the next five years. The past five years as we, uh, as we stated in, in one of our, um, research pieces recently, and fund pieces, um, very few active managers have… CLICK HERE to watch the rest of this interview at Magnifi by TIFIN
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About the Author: Gary Kaminsky
Gary Kaminsky is a Senior Advisor to Morgan Stanley Global Wealth Management and the Co-Host of "Wall Street Week." Formerly the Vice Chairman of Morgan Stanley Wealth Management, Gary joined Morgan Stanley in April 2013. Throughout the last 25 years, Kaminsky was CNBC's Capital Markets Editor, Co-Creator and Co-Host of "Strategy Session" and a regular contributor to "Squawk Box" and "Squawk on the Street." More...