The investment strategy we use at O’Neil Global Advisors focuses on identifying leading companies in disruptive industry groups that have the potential to outperform the general market. We identify investment themes that are fundamentally creating step change within their respective sectors and industry groups. We have found that companies exemplifying these disruptive themes typically have increasing earnings and sales growth and tend to outperform the market over a 12-18 month holding period. Some historical examples of disruptive investment themes include the railroad industry in 1914, the rise of commercial aviation in 1962, and the global rise of the Internet in 1990. Today, one of the ways to invest in a major disruptive theme is using the “shared economy”.
Image 1: Sector: Railroads – Bethlehem Steel, 1914. 1400% increase in 99 weeks.
Image 2: Sector: Aviation – National Airlines, 1962. 1004% increase in 179 weeks.
Image 3: Internet Networks: Cisco Systems, 1990. 1602% increase in 169 weeks.
The sharing economy is a new economic model that takes advantage of peer-to-peer (P2P) or shared access to goods and services, facilitated by online community platforms. These sharing economy platforms are possible thanks to technological advancements that allow users to generate revenue from idle assets in many sectors, such as hospitality, transportation, and leisure. Revenue generated by shared economy-themed companies could reach $335 billion by 2025, according to PwC. The shared economy model will have profound societal and economic benefits and potentially improve the lives of countless people.
Image 4: Sharing economy versus traditional mining business model.
In addition to technological advancements that have enabled the sharing economy, consumer preferences have shifted in the demographics of Millennials and Gen Z. This shift stems from a new generation that demands a high degree of personal interaction as well that many customizable options. Consumers now want community-based experiences over transaction-based experiences, driving a systemic shift in the way businesses operate.
According to PWC, the European Commission has found that around 75% of the billion cars on the road today are each driven by one person. In addition, private vehicles remain unused for 95% of their lifespan. Additionally, 43% of Americans view car ownership as both an inconvenience and a problem. These factors combined create an opportunity for consumers to generate revenue from idle automotive assets. Therefore, the sector that has benefited the most from these changes is transport and mobility.
The transportation sector enables both car-sharing and ride-sharing services that allow individuals to generate income from idle assets. Carpooling generally offers short trips to consumers, while car-sharing services offer individuals longer trips at flexible and affordable prices. The two largest publicly traded companies benefiting from the ride-sharing trend are Uber (NASDQ: UBER) and Lyft (NASDAQ: LYFT). Uber generates annual revenue of more than $17.5 billion from more than 101 million active users in more than 900 metropolitan areas around the world. Similarly, Lyft, the second-largest ride-sharing company, generates $3.2 billion in revenue annually in 644 cities in the United States and 12 in Canada.
Image 5: Transportation: Uber, 2022.
Figure 6: Transportation: Lyft, 2022
Other sectors that have benefited from the shared economy are hospitality, retail and consumer goods. The hospitality industry benefits from both monetized home-sharing and home-exchange programs. Home sharing allows users to rent out unused individual property, which creates economic benefits for both parties. The leading company in this segment is Airbnb (NASDAQ: ABNB), with $6 billion in annual revenue. Airbnb has seen exponential growth in recent quarters, with guest nights reaching 300 million in 2021, a 55% increase from 2020, demonstrating the validity of the homesharing concept. The company has also reached a global scale, with over 6 million active listings in 220 countries and over 100,000 cities currently. To date, over a billion travelers have stayed at an Airbnb. Demographically, Airbnb is very trendy since 60% of its users are millennials.
Image 7: Hospitality: Airbnb, 2022.
Traditional hotel companies using an older business model have noticed the growth of home-sharing programs, which is why Expedia (NASDAQ: EXPE) has acquired home-sharing companies HomeAway and VRBO in recent years. It should be noted that Expedia also owns the Hotels.com, Orbitz, Travelocity, trivago and CarRentals.com brands, and generated more than $8 billion in revenue in 2021.
Image 8: Hospitality: Expedia, 2022.
There are many small sectors that also benefit from the shared economy model. For example, platforms in the retail and fashion industries allow individuals to buy, sell, and rent clothing, resulting in a fundamental shift away from on-site retail and physical stores. . One example is the recent IPO of Rent the Runway (NASDAQ:RENT), which launched in November 2009 and allows users to rent or buy clothing and accessories from over 700 designers.
Image 9: Commerce: Rent, 2022.
Going forward, strategic partnerships and new product development in the sharing economy are expected to help accelerate future growth. The sharing economy is not only a disruptive and innovative investment theme, but also an opportunity for investors to generate wealth despite the current difficult market conditions.
Randy Watts and Jason Thomson
Declaration of the co-author
Jason Thomson, Portfolio Manager at O’Neil Global Advisors Inc. provided significant input in compiling, analyzing and writing the data for this article.
No part of the authors’ compensation has been, is, or will be directly or indirectly related to the specific recommendations or opinions expressed herein. O’Neil Global Advisors, its affiliates and/or their respective officers, directors or employees may have long or short interests or positions and may at any time purchase or sell as principal or agent of the securities referred to in present. .