Disruption: An Investors Perspective What Is A Disruptor? A - - PowerPoint PPT Presentation

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

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

• f 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.

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

• pportunity 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.

What To Watch

Drones Industrial Automation Cancer Treatment Minimally-Invasive Robotic Surgery Artificial Intelligence