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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
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