For decades, innovative companies with disruptive ideas have achieved stunning stock market success by challenging tradition-bound industries that were unwilling or unable to adapt.
In the 1980s, pharmaceutical firms boosted research budgets to battle the planet’s most deadly diseases. The digital revolution in the 1990s saw companies like Microsoft and Intel design software and hardware that powered the personal computer revolution. In the 2000s, upstarts like Google and Amazon.com transformed the way people search for information and shop.
The pace of innovation in the 2010s is robust. Think about it. Not long ago, who could have fathomed the ability to control a home security system from your mobile phone or ride in a car without a human behind the wheel?
This is the NEXT—or New EXceptional Technologies—Economy. Companies taking a leading role in this radical new world are developing the latest disruptive products and services that consumers want—whenever and wherever they need them. They are also the potential market leaders—the new growth companies delivering significant gains in a slow-growth world.
To identify these companies, it helps to examine six major NEXT Economy themes:
Sources: Statista, DOMO, U.S. Census Bureau
Until Apple launched the iPhone in 2007, mobile phones primarily offered users a convenient way to make calls away from home. Since then, consumers have used their phones to download movies, build song libraries, hail car rides, and connect with friends. Today, there are approximately 5 billion mobile phone users, accounting for 66% global penetration.1 In the U.S., adults average almost 6 hours a day on digital media, over half that time on a mobile device.2
Large, young populations with rising disposable incomes, particularly in emerging markets, are creating significant demand for premium products. This demographic shops primarily online and is largely reached through social media. Companies generating consumer excitement and developing e-commerce platforms with superior distribution will benefit most.
One company capitalizing on the global consumer and on-demand themes is MercadoLibre, the leading e-commerce platform in Latin America with 267 million users in 2018.3 Based in Argentina, MercadoLibre also operates the region’s largest online payment network, a credit line, and a real estate listing business. Through these interconnected businesses, the company has developed diverse revenue streams and strong customer loyalty.
A key strategy for enhancing the customer experience is collecting and analyzing digital user data. Ninety percent of the world’s data was generated in the past two years, but less than 1% of it has been analyzed.4 This disconnect has created opportunities for companies to interpret and store this data, adapt business models, and quickly deliver customer solutions. Cloud leaders like Amazon.com and Microsoft are providing efficient access to high computing power.
Walk into any coffee shop and notice how many customers pay with a credit card or phone instead of cash, even if the bill is only a dollar or two. Digital payments are rising alongside on-demand consumption, a shift offering tremendous investment opportunities. Low barriers to entry, convenience, and high security are key drivers of this trend. In China, which likely will become the world’s first cashless society, mobile payment volume surpassed $16 trillion in 2017, dwarfing the U.S. by a factor of 50.2
Adyen, a leading European-based payment processor with a 159 billion euro volume in 2018, embodies the digital payment and enterprise technologies themes. Profitable since 2011, the company counts among its 3,500 customers heavyweights like Uber and Facebook and is expanding to emerging markets.5
Mobility and Autonomy
The cars we drive and how we get from point A to point B are changing rapidly. While electric cars seemed like a remote possibility just a decade ago, they are now competing fiercely with combustion engine vehicles. Meanwhile, ride-on-demand and ride-sharing companies like Uber and Lyft are threatening the viability of taxi cabs.
A new generation of robotics that combines deep intelligence with virtual reality tools is fueling advancements in autonomous driving technologies. Ride-on-demand and autonomous driving are taking mobility to another level, creating a new ecosystem that may one day eliminate the need for people to own or operate their own cars.
Health Tech and Therapies
Robotics is making a mark in the health care sector as well. Intuitive Surgical, a pioneer in robotic surgery, has developed a system that combines software, hardware, and optics, allowing doctors to perform robotically aided surgery from a remote console. This system is gaining traction for general surgeries, such as hernias, in the U.S. and increased acceptance in Europe and Asia.
The importance of technology in the health care sector goes beyond robotics. Advances in scientific knowledge and technology platforms are fueling an unprecedented flow of innovative new biopharmaceuticals and diagnostic tools that address serious unmet medical needs. Within the biopharmaceuticals sphere, two areas are particularly promising: immuno-oncology, a therapeutic approach that leverages a patient’s own immune system to identify and kill cancer cells; and gene therapy, the transplantation of genetically modified genes into cells in place of missing or defective ones to correct genetic disorders. In the diagnostics sector, next-generation gene sequencing is disrupting biological and medical research and treatment development.
Focusing on growth in the NEXT Economy
For 50 years, Jennison Associates has successfully identified industry disruptors during their nascent stages and invested in them early to optimize long-term returns. The firm’s investment philosophy is rooted in fundamental research that identifies companies driving structural shifts in their industries, building sustainable competitive advantages, and consistently increasing revenue. As the NEXT Economy unfolds, Jennison is committed to maintaining this approach and is confident its deep and experienced investment managers will continue to uncover the new generation of market leaders.
1 Source: Statista, data as of 12/31/18.
2 Source: Kleiner Perkins: "Internet Trends 2018”
3 Source MercadoLibre, data as of 12/31/18.
4 Source: U.S. Chamber of Commerce; IDC Digital Universe Study, 2016
5 Source: Adyen, data as of 12/31/18.
The views expressed herein are those of Jennison Associates’ investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither Prudential Financial, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
1024185-00001-00 Ed. 7/2019