As much as we hate to admit it, technology conglomerates are one of the fastest growing companies. Despite concerns about a tech bubble possibly forming, we can’t discount the very fact technology is an essential part of our lives.
More importantly, though, these companies are listed on the global stock exchanges. Investors have easy access to these shares, to benefit from their success instead of just being consumed by them.
The investor who prefers brick-and-mortar business would then argue, “The tech space is so dynamic, and many changes might happen overnight. I don’t understand tech.”
Well, Warren Buffet invested in Apple last year. Initially, the Berkshire Hathaway Chairman was averse to dabbling in tech, too. But he’s invested. In fact, he more than doubled his holdings in Apple earlier this year. There should be some merits in these companies, right?
Services and solutions-based economy
Most (if not all) of the top tech companies market capitalisation wise, offer some form of service or digital solutions to their users. Although Apple sells iDevices as their core revenue driver, long-time Apple users would know they spend a lot of effort in their operating systems, mainly iOS and MacOS.
Without going into much detail, here are some examples of the services tech giants are offering now.
Apple Pay’s users almost tripled, and transaction volumes were up 500 percent year over year (2015-2016). Apple Pay dwarfs Samsung Pay’s penetration, but the latter is slowly catching up with more than 2 trillion KRW (~$2.47 billion) after 100 million transactions.
Companies dependent on intellectual property have been fighting piracy for the longest time. With the recent numbers, Netflix is one of the major contributors to fighting piracy. The answer – its subscription model.
Amazon launched Amazon Prime, which includes access to unlimited streaming of their Amazon Videos on demand. The subscription model worked, and their users are growing steadily too.
Travelling on a budget has been on the rise ever since budget airlines were spawned. The hospitality industry, however, wasn’t too friendly with accommodation for budget travellers.
Then, Airbnb changed the industry. Not without criticisms from hotels, of course. Although Airbnb only reported profits recently, it’s expected to earn up to US$3 billion by 2020. Would the home sharing and rental service platform achieve that? Only time will tell.
While Uber is busy bleeding money, we have to acknowledge its size and success. Furthermore, having $6.5 billion in revenue and still growing, is impressive. Not to mention other transportation service providers such as Lyft in the US and Grab in Asia.
Why are they winning?
What exactly are the reasons why these companies are winning?
All of the above companies mentioned solved two problems for consumers: time and convenience. Most developed economies are largely dependent on consumption. But there so many products to consume and so little time.
Thus, saving time and offering convenience are two of the most sought after attributes of almost anything when consumers pay.
Channel News Asia wrote (emphasis mine):
“…business must shift toward services and solutions and away from a product-based model. In many markets, where demand is too low to justify heavy capital investments in supply chains, business models that provide value-added services and end-to-end solutions are often more successful.”
Products, in general, require a much longer time actually to reap profits for any given company. Services, on the other hand, are released as soon as they are usable. Companies receive feedback almost instantaneously, which speeds up the improvement process. Both the corporations and users benefit. A win-win situation.
Services are also easier to scale. Distribution is not a problem for services and solutions-based companies. Manufacturing, logistics, and many more of the common challenges products-based businesses face, services don’t.
Of course, global giants such as Apple sell products, and they are still hugely successful and profitable. But we cannot discount the fact most Apple products depend heavily on the operating system and the seamless integration across devices and platforms.
Apple is a great example of how a company focusing on both goods and services can win big time. But how often can investors spot Apple-like companies?
From the startup trend and growing companies, though, it is evident the services, and solutions-based model offers more potential upside than the traditional corporations highly dependent on products.
Where to find potential upside
Some clear winners of the current trend and future include e-Commerce companies (e.g., Alibaba, Amazon), logistics partners (e.g., SingPost) and payment services (PayPal, Alibaba, Apple and Samsung Pay) just to address the e-Commerce space.
Of course, there are more up-and-coming winners in the stock market waiting for investors to discover them. Some are not listed yet, maybe even in the start-up phases. How to unearth these gems?
We’re holding an investment seminar where we invite veterans and experts with at least a decade or more of experience in local, regional and global stock markets. Meet David Kuo (CEO of Motley Fool Singapore), Rusmin Ang (Co-founder at The Fifth Person), Kim Iskyan (Founder of Stansberry Churchouse Research) and Alvin Chow (CEO of Dr Wealth).
Each speaker has their own unique expertise in several areas across the stock markets. They will share their insights and outlook of future investment trends to help retail investors make more shrewd decisions when deciding which stock to invest in.
For more information about the event, please click on the button below. Early bird discounts will end before you know so be quick to reserve your seats!
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