Embracing Disruption

Embracing Disruption:

An Investor’s Perspective

What Is A Disruptor?

A company/product/concept that changes the fundamentals of an

industry and disrupts previously successful business models

Industry Players

2016 Sales & Profits

Target & Wal-Mart Amazon

$2.7 Billion

Sales:

Profits:

$554 Billion $136

Billion

$16.3 Billion

Source: FactSet

But What Are They Worth?

Target & Wal-Mart Amazon

$255 Billion

$433 Billion

Source: FactSet s of 3/19/2017

Race to $100 Billion in Sales

35 Years 21 Years

Source: http://corporate.walmart.com/our-story/our-history

4,601 U.S. Retail Stores

96 U.S. Fulfillment Centers

1,790 U.S. Retail Stores

Source: https://corporate.target.com/Careers/global-locations http://corporate.walmart.com/our-story/our-locations http://blog.taxjar.com/amazon-warehouse-locations/

• Roughly one out of every 10 Americans works in retail

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Amazon

Walmart

Target

Revenue Growth Rates

Source: FactSet

Better value

Convenience

Wide Selection

What is Amazon’s value proposition?

Which industries are less likely to get “Amazoned”

Physical experiences Leisure & Entertainment Education

Convenience – “want or need it now”

Home Improvement / Auto Parts Prescription drugs / Convenience stores Pet food / supplies

Distribution / logistics issues

Products with low price points / perishable

Personalization / Expert Advice / Installation Beauty salons / home furnishings

2015 Revenue: $7.88 Billion % of Revenue: 7.4% % of Operating Income: 41% YoY Growth Rate: 69.7%

2015 Revenue: $99.13 Billion % of Revenue: 92.6% % of Operating Income: 59% YoY Growth Rate: 17.5%

Not Just a Retailer

16

18

20

2013 2014 2015

Growth Rate (%)

45

60

75

2014 2015

Growth Rate (%)

Source: FactSet

Cloud Competitors

Storing on “the Cloud”

= Storing on the Internet

Average Customer Savings From

Using Amazon Web Services:

64%

Source: https://aws.amazon.com/economics/

Maybe it’s not a surprise that in April 2017, IBM reported its 20th consecutive quarter of declining revenue!

“Cloud” Computing

Losers

Mainframe & “legacy” hardware companies

“Licensed” software vs. subscription based

Info tech consultants

Winners

Telecom / Communications Infrastructure

Communications technologies

Storage & security

“Cloud” focused software & services

How Airbnb Works: Visiting

Go to airbnb.com to list your trip criteria.

Pick from the hundreds of listing results.

Welcome!

How Airbnb Works: Hosting

Sign Up.

Guests find your listing and book.

Welcome guests and get paid!

Airbnb’s Competitors

Number of Locations in Kansas City

306 38 23 5

Sources: http://www.starwoodhotels.com/corporate/directory/hotels/all/list.html http://www3.hilton.com/en/destinations/index.html http://www.marriott.com/search/default.mi airbnb.com

What’s It Worth?

$16.9 Billion $22.17 Billion $30 Billion $12.6 Billion

Source: FactSet NY Times

What’s Airbnb’s Value Proposition?

Better value

“You’re not visiting; you’re living.”

Ritz Carlton Hotel Listing San Francisco, California 2 Queen Beds 400 sq. ft. $519 Per Night

Source: http://www.ritzcarlton.com/en/hotels/california/san-francisco/rooms-suites/

San Francisco, California 2 Bedrooms, 3 Beds Laundry and parking included Approximately 1,000 sq. ft. $370 Per Night

Airbnb Listing

Source: airbnb.com

What Could Go Wrong?

Winners Hosts

Travelers

Losers Hotel Industry Travel Agencies

Local Government

Winners Hosts

Travelers

Industry Competitors

Value Proposition

No Ads

Convenience

Price

Original Content

Minutes of Commercial Time Per Hour

Netflix

Ad-Free

Time

Ad-Free

Time

Ad Time

Cable Television

25% Ads

Cable television averages 15 minutes of advertising per hour.

0% Ads

Source: http://www.latimes.com/entertainment/envelope/cotown/

Convenience: Binge-Watching Watching multiple episodes in one sitting

70%

30%

Netflix Users

Binge-Watchers

Non-Binge-Watchers

Binge-watchers average 5 episodes per sitting

Source: http://expandedramblings.com/index.php/netflix_statistics-facts/

Price Comparison

Average cable bill:

$75-$100/month

Cable

Basic: $7.99/month

Standard: $9.99/month Premium: $11.99/month

Netflix

Hulu Limited Commercial: $7.99/month

Commercial Free: $11.99/month

Sling Sling Orange: $20/month

Sling Blue: $25/month

YouTube Red $9.99/month

Amazon Prime Amazon Prime: $99/year Student Prime: $49/year

Sources: money.cnn.com Hulu.com Netflix.com Youtube.com/ReD Sling.com Amazon.com/prime

Netflix Originals

HBO Originals

How Do They Make Money?

Subscriptions

Advertising

Cable Netflix vs.

97.4 97.6 97.6 97.5 97.2 96.9 96.5 96.2

20.1 20.4 20.9 21.5 22.8 24.1 25.5 26.8

2010 2011 2012 2013 2014 2015 2016 E2017

TV Subscribers Non-TV Subscribers

Cord-Cutting On The Rise

Source: http://www.businessinsider.com/decline-of-us-tv-subscribers-2015-4

27.1

33.4

39.1

44.7

20

25

30

35

40

45

50

2012 2013 2014 2015

Subscribers

(millions)

Year

U.S. Subscribers: Netflix

Netflix Subscriber Growth

Source: FactSet

Winners Consumers

Broadband Internet

Losers Advertisers

Cable Companies Content Providers

Winners Consumers

Broadband Internet

Industry Competitors

Twitter LinkedIn Snapchat

Starbucks McDonalds Facebook

11 Million 68 Million

1.09 Billion

Daily Users

Sources: starbucks.com answers.com newsroom.fb.com

But Not Just Facebook…

WhatsApp 320 Million Daily Users

Oculus Rift The Leader in Virtual Reality Technology

Instagram 300 Million Daily Users

Source: http://expandedramblings.com

How Does Facebook Advertising Work?

Facebook Activity

Internet Searches

Personalized Ads for Each

User

Success Stories

75% incremental reach compared to TV 11 point increase in brand awareness

2.3x increase in volume of subscription conversion 25% decrease in cost per subscription

11.7% increase in brand awareness 54% of audience (35 million people) reached in 3 days

23.6 million people reached in 3 days 30% more views than the initial target

Source: https://www.facebook.com/business/success/

Industry Players

Uber Statistics

Over 8 million users

160,000 drivers 300 cities 1 million rides per day

Source: expandedramblings.com

State Uber Taxi (+20% Tip) % Savings

New York $17.75 $18.60 5%

Dallas $10.30 $13.50 24%

Detroit $12.30 $19.80 38%

Seattle $11.70 $19.20 39%

San Francisco $12.30 $20.70 41%

Chicago $9.50 $16.80 43%

Los Angeles $9.40 $19.62 52%

*Data: Business Insider 2015

Cost: Uber Vs. Taxi A 5 mile, 10 minute trip:

Uber Is Cheaper In Every City!

The Cycle of Disruption

Lower Uber prices

compared to Taxis

Consumers use Uber instead of

Taxis

Drivers switch from Taxi to Uber

More Uber drivers are available

Not Just A Car Service

Uber $68 Billion

What’s It Worth?

Hertz $4.7 Billion

Enterprise Holdings $13.5 Billion

Source: skift.com

What’s It Worth?

Toyota $165 Billion

Uber $68 Billion

Ford $49 Billion

Honda $45 Billion

Source: Bloomberg

Winners

Consumers Low-Skilled Workers

Losers Taxi Companies

Rental Car Companies Local Transit

Local Government

Winners

Consumers Low-Skilled Workers

Tesla’s Products

Electric Cars

Model S Model X Model 3

Batteries

Who’s Buying Teslas?

84% Male

77% Income over $100,000

25% Owned a Toyota

11% Owned a Mercedes

10% Owned a BMW

Majority male, younger and wealthier

Source: http://www.latimes.com/business/autos/ http://www.cnbc.com/id/100970641

2015 U.S. Car Sales

115,262

Electric Vehicles

Total Vehicles

17.39 Million

Plug-In Hybrid Electric Vehicles

284,738

Source: http://www.csmonitor.com/Business/In-Gear/2016/0417/Global-electric-car-sales-on-the-rise http://gas2.org/2016/06/07/new-iea-report-says-1-26-million-electric-cars-sold-2015/ http://www.autoalliance.org/auto-marketplace/sales-data

China has already passed the U.S. in EVs

Source: http://www.latimes.com/business/autos/ http://www.cnbc.com/id/100970641

Top 5 Electric Vehicles Sold In 2015

0

10,000

20,000

30,000

40,000

50,000

60,000

BMW i Series BYD Qin

PHEV

Mitsubishi

Outlander

Nissan Leaf Tesla Model S

Source: http://inhabitat.com/tesla-model-s-was-the-best-selling-electric-car-in-the-world-last-year/ http://gas2.org/2016/02/13/bmw-i8-is-best-selling-hybrid-sports-car-in-the-world

Electric vehicle producton forecasts

EV battery cost forecasts

Goldman Sachs Forecast Seven things that may surprise you

1. Need a payback of 3 years for consumers to embrace Electric Vehicles Not likely to happen until 2025-2030

2. Battery efficiency improvements should eliminate the need of

subsides by 2028

3. EVs are not necessarily eco-friendly CO2 emission volume depends greatly on energy source used to

generate the electricity

4. EVs only have 2/3 of the parts used in gasoline vehicles, but are very complex to manufacture

5. Future advances in internal combustion engines are likely to lag

the massive improvements being achieved with EVs

Source: Goldman Sachs: Electric Vehicle Boom: ICE-ing The Combustion Engine., September 2017

Goldman Sachs Forecast Seven things that may surprise you

6. Raw material costs likely to remain a significant hurdle in lowering battery costs Lithium price has almost doubled in past three years For a rare metal, lithium is quite plentiful, but a highly reactive

element that poses difficulties when extracting and producing into battery grade material

Lithium supply / demand likely to remain tight towards 2025 Key U.S. companies – Albemarle and FMC Corp.

7. All solid-state batteries nearing viability

Solid state batteries are the most promising successor to lithium ion batteries

Solid state has potential to double energy density and substantially reduce recharge time and minimize degradation

Toyota aims to have an EV powered by an all solid state battery by 2022 – other top players incl. Sumitomo Electric, Panasonic, Nissan, Idemitsu, Ohara, LG, Philips, Namics & Sony

Source: Goldman Sachs: Electric Vehicle Boom: ICE-ing The Combustion Engine., September 2017

Tesla Powerwall Home Battery

The Gigafactory Tesla’s Battery Factory

5.8 Million Sq. Ft. $5 Billion to Build

To Be Completed in the Next 4 Years

Source: http://www.npr.org/sections/alltechconsidered

Tesla and Solar City Merger

Designs and Installs Solar Power Systems

Designs and Manufactures Electric Cars and Battery Components

Sun Solar Panel

Power Wall

Power Home & Car

The Vision

100% Renewable Energy

Break Even Analysis

Price of Power Wall: $3,000 x 4 Units = $12,000 Installation Costs & Supplies: $4,000 Solar Panel Cost (after tax credit): $21,000 Average Annual Electric Costs: $1,391 Average Amount Spent on Gas: $1,400

Source: http://www.freecleansolar.com/What-is-the-price-cost-for-a-SolarCity-PV-system-s/4620.htm http://money.cnn.com/2015/05/01/technology/tesla-home-battery-price/index.html https://www.teslamotors.com/powerwall https://www.nerdwallet.com/blog/finance/save-money-putting-solar-panels-roof/ http://money.cnn.com/2015/12/16/news/economy/gas-savings-this-year/

Break Even Analysis

1 Electric Vehicle 2 Electric Vehicles

13 Years 9 Years

Tesla’s Long Term Goal

Take Us Off the Grid!

Winners

Electric Utilities (Short Term) Natural Gas

Alternative Energy Developing Nations

Losers Auto Industry Energy Sector

Oil Gas Stations

Electric Utilities (Long Term)

Winners

Electric Utilities (Short Term) Natural Gas

Alternative Energy Developing Nations

Autonomous Driving

90% of car crashes involve human error

The Case for Autonomous Driving

If only 10 percent of the cars on the road were self-driving… accidents would be cut by 211,000 a year

deaths would drop by 1,100 the economic savings would hit $38 billion

When 90 percent of the cars are autonomous…

4.2 million accidents would be avoided 21,700 lives would be spared

the monetary savings would be $450 billion

Source: Eno Center for Transportation

Industry Players

Potential Impacts

Some key developments over the past year:

Uber’s Otto hauls Budweiser across Colorado in self-driving truck

Volvo Unveils SuperTruck at DOE, joins Stage 2 of Research Project

ZF and NVIDAI Announce Artificial Intelligence Systems for Autonomous Cars, Trucks & Industrial Applications

NXP’s new autonomous driving products focus on safety for self-drivin trucks

Scania to Trial the First Autonomous Truck Platoon

Driverless truck testing starts in Singapore / China

Tesla to Unveil Semi-truck in late 2017

Michigan Enacts New Autonomous Driving Legislation

Maryland Applies to Us DOT for Autonomous Vehicle Testing

Potential Impacts

Potential Impacts

Agricultural Markets

Europe's CNH Industrial, known for its Case IH tractor brand, unveiled an autonomous concept tractor in August 2016 in Iowa at the Farm Progress Show, one of the world's largest farm shows. CNH's autonomous tractor could presumably work unmanned around the clock and uses GPS and sensor technology. The grower could remotely monitor and control the machine using a device such as a tablet.

Source: http://www.npr.org/sections/alltechconsidered

Agricultural Markets

CNH's autonomous tractor could come to market as early as 2020. Deere and AGCO’s New Holland division, two rival farm machinery manufacturers, have similar technologies. Goldman Sachs predicts farm technologies could become a $240 billion market opportunity for ag suppliers, with smaller driverless tractors a $45 billion market on its own. Tens of billions could also be be spent on advanced tech for major farm uses such as precision fertilizer, planting, spraying and irrigation, Goldman predicts.

Source: http://www.npr.org/sections/alltechconsidered

What To Watch

Drones

Industrial Automation

Cancer Treatment

Minimally-Invasive Robotic Surgery Artificial Intelligence