Crash 3.0 has arrived and it has taken its pound of flesh and then some. Where the volatility stops is anyone’s guess, but there is a silver lining in market mayhem: lower prices on equities that offer compelling growth. When the markets do turn around it is often the most innovative companies that generally provide for outsized returns.
Unconvinced? Look at what happened after the last “crash” to companies such as Chipotle (CMG), Netflix (NFLX) and Salesforce.com (CRM). They are each up a minimum of 400% from 2008 lows. Granted, nobody knows when a market bottom is upon us, but it has generally proved to be “greedy when others are fearful”. This is trite to be sure- but also true. Buying equities during market swoons in 2002 and 2008 proved profitable ventures. Let’s look at this batch of new “new” economy companies poised to take advantage of structural changes in the way consumers and the economy operate:
LinkedIn (LNKD) - Think this social media darling is caught in a bubble? With a market cap of over $8 Billion and revenue just north of $350 Million, it is easy to pose the question. But LinkedIn is THE platform for online professional networking and this network changes the game in recruiting and looking for talent. Think about it - if you are a corporate recruiter: at your fingertips the professional profile and job status of a huge proportion of plugged-in, net savvy professionals. This data is practically priceless and in one fell swoop it blows past Yahoo’s (YHOO) Hot Jobs or Monster World Wide (MWW) as the place to find talent. Both Hot Jobs and Monster are legacy models filled with out of work job seekers. It is easy to find 1000s of job seekers in this economy- hard to find the perfect fit and one that may already be successfully employed. There is a niche for this, but LinkedIn with its data and self-populating network has years of rapid growth at its threshold. This company has the opportunity to become a tech media behemoth. HomeAway (AWAY) - Looks likely to become a titan of the online marketplace for vacation rentals. The Austin, TX based company operates its online marketplace through 31 Websites in 11 languages and provides listings for vacation rentals located in approximately 145 countries. This is a growth market and HomeAway’s offering was very well received on Wall Street. It has come down a bit with the latest market swoon but trading at about $33.00 with a $1.3 Billion market-cap, HomeAway is poised to capture the market for intrepid vacationers who increasingly are looking for value and vacation alternatives through private listings. Amyris (AMRS) - Amyris has some very bright scientists coming up with some very cool products in the arena of 2nd generation biofuels and integrated renewable products. They are at the frontier of taking plant based sugars and converting them into hydrocarbon molecules and the potential applications are almost without limit. Its “No Compromise” platform has the ability to create cheaper and more sustainably derived jet fuel, diesel fuel and other specialty chemicals. Amyris also has oil major (Total) as a strategic investor. The latest market turbulence has created an opportunity to buy into the future of a very exciting industry at a much more reasonable valuation. Currently trading at about $20.00/share and with a $1 billion market cap this is decent entry point. Zipcar (ZIP) - Zipcar’s business model is simple: a car sharing model for urban environments that offers easy access, a simple subscription model and a network of cars that can be accessed via smart phone applications for real time location searches. While not yet profitable, the idea is gaining market acceptance in progressive urban markets like San Francisco, Boston, New York and Washington D.C. Zipcar has a model that is both scalable and potentially very profitable as it reaches peak saturation in these and other markets. Zipcar currently trades at approximately $22.00/share down from about $30.00/share. Tesla Motors (TSLA) - Tesla Motors is a game changer in the evolution of the auto industry. Tesla Roadster and the soon to be launched “Model S” are arguably among the most evolved and modern concepts on the road today. Thank a huge injection of venture capital, a guaranteed loan in the amount of $465 Million from the US Department of energy and an over $100M investment from Toyota (TOYOF.PK) Motors for bringing the necessary capital and credibility to so daunting a task. It is working - with thousands of cars on the road, Tesla is a first mover in the electrification of the automobile and this movement has some serious momentum in being absolutely part of the conversation. This is especially the case as electric cars get more advanced and start to get manufactured at scale (reducing prices). Most of us would much prefer to not buy gas ever again, governments and citizens want a global warming stopper and the time is nigh for less reliance on fossil fuels from hostile countries. Tesla is valued at $2.4 billion and the shares trade at $18.00. Pandora Media (P) - Apple (AAPL) is not the only innovator as a platform in the delivery of music. Pandora’s unique offering lets users listen to the music they want to hear (customized stations and genres), in format that many listeners are gravitating to: streaming over the internet or iphone or Android device. Pandora gets paid for display, video and audio advertising. Pandora has a novel and very sticky concept- if you’ve tried it you are likely to become a user- and its user base is likely to ramp quickly driving additional advertising dollars. The valuation became excessively frothy, but the latest turbulence has brought it down to a more palatable entry point. Pandora currently trades at $1.87 billion market cap and $11.00/share. Zillow (Z) - Zillow has become more than the place that you look to see how little your home is worth, its platform of 100 Million + properties has become a compendium of market information, rental and sale listings and a place to source service providers and agents. While its model is relatively unproven from a revenue standpoint (it gets display revenue for subscribing vendors, brokers and agents), it is likely to find novel ways to monetize its significant online presence. Zillow is disruptive in that it has brought the power of information into the hands of the consumer. This is a significant ally as it goes to market with a marked down $27.00/share and $750 million valuation and it is likely to find buyers looking for innovation. If the events of the past decade have taught us one thing it is this: the world is changing. There are arguably more companies being formed and more companies being destroyed than at any time in history. This disruption will occur whether we choose to participate or not. The velocity of change will destroy wealth, but it also has the power to nurture and create wealth.
People are interacting and buying in more and different ways than ever before (LNKD, AWAY, Z), and they are choosing to consume entertainment (P) and transportation (TSLA, ZIP) in novel ways that use less energy and become more relevant in a networked culture. We can adopt these trends as a consumer and most importantly, we can benefit from investing in it. To be sure some of these companies will do better than others, but they are boldly facing a future that looks to tilt in the direction of innovation, disruption and progress.
Disclosure: I am long AMRS.
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