by Jeff Reeves | July 9, 2013 11:36 am
By now, we are all painfully familiar with the trend and tech buzzword of the day known as “disruption.”
In a nutshell, disruption refers to a company that comes in and revolutionizes a marketplace in such a way that even the entrenched players can’t help but feel the ground move under their feet.
Apple (AAPL) is always the ultimate case study. The iPod disrupted CDs and the entire music industry. The iPhone blew up both cellular phones as we knew them and challenged the relative “mobility” of laptops. Then the iPad took that mission one step farther.
The result was a company that exploded in popularity with consumers and investors alike, seeing its stock go from under $10 in 2002 to more than $700 a share in 2012.
Apple is old news, however, since the momentum has faded and investors are coming to grips with the company in its new and more modest form after the parabolic growth. But a few other innovative players still are disrupting markets, and their stocks are soaring ever higher. Here’s a look at five:
Electric-car manufacturer Tesla (TSLA) is no froufrou green-energy startup that bases its business on THC-clouded dreams. The company reported its first-ever quarterly profit this year, and has fully paid back Uncle Sam’s low-interest loans meant to encourage alternative fuel technology.
Why? Well, it’s partially because of the MPG factor and do-gooders looking for alternatives to fossil fuels. But it’s also because the cars from Tesla have sex appeal with sleek, luxurious designs that get and rave reviews — including the highest-ever rating for an automobile by Consumer Reports. Reservations have been red-hot, and the company issued more stock to raise capital so it could boost production capacity to keep supply meeting demand.
When you have a product that is good for the planet, connects with consumers and makes a modest profit in the process, it’s obvious you’re on to something. And investors who were on to Tesla stock early have been richly rewarded; TSLA went public at $17 a share in 2010, and now trades for $120.
There’s more: Tesla’s success has come despite intransigent auto dealers who feel threatened — dare I say “disrupted” — by TSLA and its aims to sell directly to consumers. And Tesla’s Model S continues to appeal to higher-income customers with a starting sticker price of around $60,000, leaving the potential for a mid-range model down the road.
Investors who think Tesla is just a fad better think again. This car company is going places.
Anyone in the market for a home in 2013 knows how to surf the web to find listings. In fact, most of us find it not just enjoyable to browse homes online, but also educational — we can get a sense for home values in our areas or find neighborhoods where inventory is particularly abundant or scarce.
So it’s no surprise that when Zillow (Z) priced its 2011 IPO at $20, investors were clamoring to get a piece of this online real estate listing company. Zillow shares gapped up more than 70% on their first day of trading and never looked back, currently trading for around $60 a share.
Real estate agents are still very popular, with a March report from BusinessWeek stating that 89% of transactions continue to go through conventional brokers. But that same report said 42% of buyers found their property online on their own vs. 34% finding the property via an agent.
Will some folks continue to use a real estate agent because of their knowledge of the market or because they’re afraid of facing the daunting task of purchasing their first home alone? Absolutely.
However, it’s naïve to think this profession isn’t threatened by the ease of use and abundance of information that goes along with Internet real estate listings.
Throw in a recovering housing market, and Zillow should continue to disrupt its way to big profits for investors in years ahead.
It used to be that people would look at the “want ads” in the newspaper. Then HotJobs, now owned by Yahoo (YHOO), and Monster Worldwide (MWW) broke the mold by providing an online replacement for employers and job-seekers.
LinkedIn (LNKD) has taken that one step farther in the age of social media, tying together networking, job ads and even content tied to professional development or business trends. The stock has blown up as a result — LNKD priced its 2011 IPO at $45 and now trades around $200 a share.
Don’t think this is just a social media fad like Facebook (FB), however, dependent on fickle users and display advertising. While Facebook is struggling to find profits thanks to mobile challenges, LinkedIn boasts a host of corporate customers. Its annual report in February revealed a 78% jump in Corporate Solutions customers — that is, enterprises or professional organizations that use LinkedIn for recruiting or marketing services.
Also, with its Influencers content, LinkedIn is developing an extra layer to its business by providing professionals with career tips, news and other professional insights from thought leaders. And we’re talking big-name businesspeople, including Microsoft (MSFT) founder Bill Gates and former General Electric (GE) CEO Jack Welch.
My favorite plus is that LinkedIn also has a real media CEO in Jeff Weiner, who joined LinkedIn in 2008 after serving as a vice president at Yahoo (YHOO). There’s no edgy, young programmer with a mind for code but no mind for profits here, but a real executive at the helm.
Going forward, it remains clear that people are relying on connections to get jobs in the new economy — and LinkedIn is in the right place at the right time to lead this shift in how people find work.
Speaking of disrupting the hands-on model of a human in favor of online databases, let’s not forget dot-com darling Priceline.com (PCLN).
Priceline and its “Negotiator” William Shatner continue to successfully disrupt online travel, offering a wide variety of travel options and competitive prices in an instant. Priceline did crash to $15 a share in 2001 after the tech bubble burst, but it grew steadily across the 2000s until exploding in recent years to almost $900 a share.
Why? Well, its place at the center of reinventing travel booking is nice, but the numbers that have come with that status indicate the run is far from over. Consider that Priceline’s IPO was in 1999, but it continues to grow at an exponential clip. From fiscal 2009 to fiscal 2012, for instance, revenue improved at an average annual rate of 40% and earnings grew at a 60% rate!
That’s a heck of a performance for a tech company that is more than a decade old — a lifetime in Silicon Valley. But Priceline continues to disrupt the space and see huge profits as a result.
Netflix (NFLX) disrupted Blockbuster right into Chapter 11 protection, and continues to make waves as it moves to tighten its grip on the streaming video marketplace.
Earlier this year, for instance, Netflix topped HBO in total subscribers after a number of big-time content partnerships with companies like Disney (DIS) and Dreamworks (DWA), along with ambitious original programming like the hit drama House of Cards starring Kevin Spacey.
The company is moving into international markets, too, and has aims of hitting 50 million subscribers worldwide by 2020. That’s a massive number, but if anyone can do it Netflix can.
Imitation is the most sincere form of flattery, of course, and competitors including Hulu Plus and Prime from Amazon.com (AMZN) are looking to get in on the streaming action. It remains unclear how NFLX will fare against these rivals, but its first-mover status and brand appeal seems to be giving it a significant edge for the time being.
Either way, cable companies like Comcast (CMCSA) continue to lose thousands of subscribers each month … so even if Netflix doesn’t stay on top forever, the old model of cable television has been forever disrupted by this booming Internet stock.
Despite a big drop in late 2011, Netflix has come roaring back to deliver 750% returns in five years and an impressive 150% gain since Jan. 1 thanks to a short squeeze after proving the naysayers wrong.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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