The Tech Bet Almost No One Knows About
I’m asked frequently about the tech giants we talk about all the time – Amazon, Alphabet, Alibaba and Facebook – because investors finally understand the implications of digitizing everything.
…and that’s the one company I want to talk about today.
In a Gold Rush, Sell Both Picks AND Shovels
Most investors are at least passingly familiar with technology investing at this stage of the game, if for no other reason than the numbers around it are so daunting:
… 205 billion emails a day, or 74 trillion emails a year, and 2.4 million a second
… 4 million Google searches conducted worldwide every minute of every day.
… 2.5 million posts “liked” every minute on Instagram.
… 350,000 tweets sent out every minute.
… 6 billion Facebook posts “liked” every day.
More than 2.5 quintillion bytes of data get created every day, according to IBM. To put this into context, that’s a 1 followed by 18 zeros and enough data to fill 57.5 billion 32GB iPads.
Only trouble is, that’s not the end game. These aren’t the heady days of 1999, when you could pick an internet company by throwing a dart across the room and make money.
You’ve got to be very selective and back up a few steps.
The situation reminds me of the California Gold Rush of 1849 in that very few miners actually hit it rich. That fell to people like Sam Brannan who had a lock on almost every shovel and pick sold to miners lured by the promise of easy money. Millions… back in the day.
Now, it’s billions on the line.
Technology is growing so fast companies cannot keep up.
Consider this list of gizmos advertised in 1991 by Radio Shack:
- All weather personal stereo: $11.88
- AM/FM clock radio $13.88
- In-Ear Stereo Phones: $7.88
- Microthin calculator: $4.88
- Tandy 1000 TL/3: $1599
- VHS Camcorder: $799
- Mobile Cellular Telephone: $199
- Mobile CB: $49.95
- 20-Memory Speed-Dial phone: $29.95
- Deluxe Portable CD Player: $159.95
- 10-Channel Desktop Scanner: $99.55
- Easiest-to-Use Phone Answerer: $49.95
- Handheld Cassette Tape Recorder: $29.95
Combined, they’d set you back more than $3,000 – or $5,000 in today’s money. Now, you can do all of that with a single smart phone that’ll set you back a few hundred dollars at most.
Don’t get me wrong, though.
That’s not to say companies aren’t trying, especially when it comes to high growth, high change industries that require exceptional accuracy and speed to market like medicine, defense, and even financial services… which we’ll return to in a moment.
According to McKinsey, just 18% of global enterprises have moved substantially into the digital world and they cannot hire people fast enough to get the job done despite the fact that there are an estimated 18-25 million software developers worldwide and the field is growing by 40% or more a year.
Obviously cloud computing is a big part of that, which is, of course, why it’s at the heart of the Unstoppable Trend we simply call “Technology.” In fact, it’s at the heart of everything.
Smart TVs, smart cars, smart houses, smart wearables, smart devices… you name it. If there’s data, chances are good that it moves through the cloud, which means rapidly increasing demand for real-time information and analytics, a complete re-write when it comes to digital security, and an industry that’s driven almost exclusively by software, not hardware, like it used to be.
You can group this any way you want, but the advances are so stupendous that they are almost impossible to comprehend.
Admittedly, I don’t know whether to be terrified or wildly optimistic about a secretly-developed two-legged machine that took its first steps in South Korea recently. The 13-foot-high METHOD-1 robot weighs in at 1.6 tonnes and moves by mimicking its “pilot” who rides inside. It’s straight out of the smash hit 2009 movie, Avatar, and obviously has significant military application.
Very few people have stopped to think about the implications associated by the imminent arrival of self-driving vehicles. But I’ll be you dimes to dollars that thought is front and center for 2.3 million truckers.
Then there’s the CRISPR-Cas9. It’s a tool created to allow scientists to make specific changes to genes in living cells. Scientists have already used it to stop cancer cells from multiplying, reversed the specific genetic modifications that cause blindness, and even engineered wheat that’s impervious to killer fungi.
It’s no wonder the global IT market may top $4 trillion next year…
…not a single byte of which will move without code.
That’s your entry.
I’m particularly attracted to a small Australia-based company called Atlassian Corp. plc (NasdaqGS: TEAM), which develops software tools to help coders code 30%-50% faster.
Never heard of it?
You’re not alone. Most investors haven’t despite the fact that their client list reads like a Who’s Who and includes names like T-Mobile, Pandora, and the BBC, just to name a few of the more than 60,000 companies using their development, project management, and collaboration tools.
Atlassian is active in just about every industry segment you can imagine, which means there’s a great overlap when it comes to the information “gold rush” I’ve just described. The company has them grouped logically as you might imagine into eight logical buckets: digital media, government, healthcare, life sciences, media, retail, services, and travel.
I am particularly excited about the company’s July acquisition of StatusPage, a Y Combinator-incubated service giving online businesses the ability to keep their users updated on the status of their online services. StatusPage gives Atlassian access to customers like Intuit, Venmo, New Relic, and Citrix, and will be one of a handful of strategic acquisitions to fuel the company’s revenue momentum.
The company trades at just $24 right now and has an institutional ownership of 33% according to GoogleFinance. That tells me there’s room to grow at a time when the firm – which is growing revenue at 34% year-over-year – has largely escaped Wall Street’s radar.
But it’s only a matter of time until that changes.
There are 14 analysts covering the stock, and it’s worth noting that several hedge funds and other major financial players have recently purchased shares including Janus Capital and J.P. Morgan.
The analysts covering TEAM are very bullish long-term, projecting average 25% growth per year for five years. That’s stronger than the historical performance of Berkshire Hathaway, and keep in mind, these projections come from a group of people who have underestimated TEAM’s earnings for four straight quarters – including a 175% earnings surprise this time last year.
In closing, there’s no question that certain tech stocks carry a hefty premium at the moment but that doesn’t change the fact that you’ve got to own ’em if you want to participate in the digital gold rush.
Just don’t forget the picks and shovels.
Until next time,