Each week, a professional investor tells us where he’d put his money. This week: David Older, Carmignac Gestion.
Innovation and growth are the life blood of technology and internet companies. In this sluggish environment, investors should favour the more successful companies that focus on secular growth trends (cloud computing, mobile internet and big data) and are able to outperform the wider market, no matter the phase in the economic cycle.
The technology and internet sector has a “winner takes all” dynamic where the dominant players are able to capture a very large share of the market. This strong polarisation requires a rigorous stock-picking approach: it creates a number of new opportunities for those willing to seek them out. Investors should focus on companies able to create additional long-term growth drivers by reaching out beyond their legacy business to new areas with high growth potential.
Amazon (Nasdaq: AMZN) is a core holding for us. There are two positive stories driving its growth, both of which are very disruptive for its competitors. On the e-commerce side, Amazon’s disruption was evidenced in the recent earnings updates from America’s bricks-and-mortar retail chains. These competitors called out headwinds from lower mall traffic and rising apparel selection on Amazon.
Secondly, Amazon is now the dominant provider of cloud infrastructure, which will be the most disruptive development in global technology spending for the next several years. The same mobility that underpins Amazon’s retail success similarly buoys Facebook (Nasdaq: FB), which continues to be disruptive both with its original site and with new initiatives such as Instragram, Messenger and virtual reality.
A total of 65% of users access the website on a daily basis, with the average user now spending 40 minutes a day on the platform. This incredible engagement attracts advertising companies, and therefore advertising dollars.
In emerging markets, some dominant players in the internet sector also tend to capture the largest share of the market. MercadoLibre (Nadsaq: MELI) is the largest and fastest growing e-commerce operator in Latin America. The company has evolved from a marketplace to an e-commerce technology facilitator with services such as payment solutions and shipping, in a region where the penetration of e-commerce is very low.
The Chinese online gaming and social networking company Tencent (Hong Kong: 700) is also a company we like. Tencent focuses its development strategy on linking its dominant position in social networks with interactive services to create one of the largest, most active audiences in China. Its WeChat app is already the most popular social media application in China, with very high long-term monetisation potential.