ARK Invest Buys Genius Sports Stock Even as Short Seller Slams It

Posted on: August 6, 2021, 12:28h. 

Last updated on: August 6, 2021, 12:49h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Genius Sports (NYSE:GENI) stock is extending a rally born Thursday, as a well-known growth investor bought shares of the sports betting data provider, likely driving some of the Friday upside.

ARK Genius
ARK Invest founder Cathie Wood during a May interview. Her firm bought shares of Genius Sports even as a short seller railed against the name. (Image: CNBC)

Cathie Wood’s ARK Investment Management bought 280,214 shares of Genius Sports on Aug. 5, marking the fund issuer’s initial position in the stock. That purchase was directed to the ARK Next Generation Internet ETF (NYSEARCA:ARKW) where Genius is currently the smallest holding in the $6.35 billion exchange traded fund (ETF) at weight of 0.08 percent, according to issuer data.

Genius rallied yesterday on news of a data sharing accord with DraftKings (NASDAQ:DKNG). But there’s still some controversy surrounding the name. On Thursday, forensic accountant and noted short seller Spruce Point Capital Management issued a scathing report on Genius, saying the stock could tumble as much as 80 percent.

In a report titled Mr. Irrelevant… It Doesn’t Take A Genius, Ben Axler’s Spruce Point, which is short Genius stock, says the company likely overpaid for a data agreement with the NFL, and that nearly a third of bets placed aren’t dependent on the data provided by Genius and its competitors. That indicates the market for the company’s services is potentially far smaller than it’s letting on.

ARK Not Afraid of Controversy

It may just be coincidence that Wood’s firm stepped into Genius on the day the Spruce Point report was released. But ARK has a reputation for not being afraid of stocks that could be sources of controversy.

That’s particularly true of the fund manager’s gaming positions, which currently consist of Genius, DraftKings (NASDAQ:DKNG) and Skillz (NYSE:SKLZ) — all three of which have been assailed by short sellers at some point this year.

ARK owned shares of DraftKings across several of its ETFs in advance of a bearish report by Hindenburg Research published in June. Wood’s firm added to its position in the sportsbook operator following release of the Hindenburg note.

Though ARK recently modestly trimmed its position in Skillz, the money manager has been a diligent buyer of the mobile games platform operator this year, even defending it in the face of no fewer than three short seller reports.

What ARK Could See in Genius

Genius doesn’t operate as a consumer-facing sportsbook. Rather, sportsbook operators buy data from the company and its rivals. It’s expected those purchases will increase over time as in-game wagering grows in popularity in the US.

In other words, companies like Genius are backbone or infrastructure plays on the growth of regulated sports betting. For its part, ARK last month forecast a ten-fold increase in domestic sports betting handle to $180 billion by 2025, with revenue soaring at a 31 percent compound annual growth rate (CAGR).

For its part, Spruce Point calls Genius a “middleman” with an “inferior business model,” while noting the stock could be vulnerable to significant near-term headwinds as a lockup period expires this month, permitting insiders to sell shares.