In the spring of 2000, a man named Reed Hastings traveled to Dallas with a big business idea. Hastings approached the management of movie rental giant Blockbuster with a proposal. He wanted Blockbuster to buy his small business for $50 million.
At the time, Hastings’ company — Netflix (NASDAQ:NFLX) — had a promising business model. It allowed people to rent movies through the mail. Netflix, at the time, was small and struggling to turn a profit.
Hastings believed a Blockbuster purchase of Netflix would be a win-win deal. Blockbuster’s managers did not. They didn’t think Netflix’s business model made sense for them. A Netflix executive later said that Blockbuster essentially laughed Hastings out of the room.
You know the rest of the story.
Netflix secured investment from other sources and built a hugely popular mail-order DVD rental business.
Around 2007, it made a brilliant move and began transitioning into America’s No. 1 movie and television “streaming” service. This innovation crushed traditional brick-and-mortar rental companies like Blockbuster.
In 2002, Netflix had less than 3 million subscribers. Today, the company boasts 167 million subscribers and a market valuation of $160 billion.
Blockbuster’s market valuation?
$0. The company is in liquidation.
Blockbuster’s Downfall
Blockbuster went from a market value of $5 billion to bankruptcy in less than nine years. Its shareholders lost everything … and its “pass” on Netflix is widely regarded as one of the worst decisions in modern corporate history.
To give you an idea of how an investor would have done with an early Netflix stake, consider that Netflix stock fell to a split-adjusted low of 35 cents per share in 2002. Assume you did not buy the bottom, but instead waited until the stock had developed some visible momentum, and then bought in at $1 a share.
If you had committed just $5,000 at that price to pick up 5,000 shares of Netflix, that modest investment would now be worth more than $1.6 million — a mind-numbing return of more than 32,000%!
But it doesn’t have to be that way for companies like Blockbuster.
If they are able to innovate, even companies much older than Blockbuster can become Wall Street’s “next” tech superstar.
Today I’ll show you one example of that.
Plus, I’ll show you how that company’s story revealed to me a profit opportunity that I believe could result in my next 1,000% winner …
A Ticket to Dozens of Startups
When Naspers (OTCMKTS:NPSNY) opened its doors in 1915, few could have guessed it would become Africa’s largest company … a multibillion-dollar technology corporation … and the parent to Europe’s biggest consumer internet business.
But that’s exactly what happened.
Naspers — then known as De Nationale Pers Beperkt — got started by publishing local newspapers.
In the 1980s, the company began expanding beyond newspapers into other facets of media and entertainment. Naspers ventured further out into the fringes of media until finding, in 2001, a young Chinese startup named Tencent (OTCMKTS:TCEHY).
The Naspers team liked what it saw and wrote a $32 million check to purchase a 46.5% interest in the company. The rest of the Naspers tale is a success story of legendary proportions.
Naspers’ $32 million bet on Tencent blossomed into a spectacular $135 billion profit.
Emboldened by this major success, Naspers continued scouring the globe for additional blockbuster technology investments.
During the last decade, Naspers has invested nearly $15 billion in more than 70 tech-focused startups and early stage ventures. None of these investments has yet become “another Tencent,” but a few have delivered meaningful rewards.
Last year, for example, Naspers booked a $1.6 billion profit by selling its nearly 12% stake in Flipkart, India’s largest e-commerce marketplace. Naspers had invested a total of $616 million before deciding to sell its interest to Walmart (NYSE:WMT) for $2.2 billion — a gain of more than 250%.
Naspers’ Six Investment Categories
Although Naspers invests throughout the world, it restricts its focus to just six categories:
- Payments and financial technology (fintech)
- Classifieds
- Food delivery
- Social media and internet platforms
- E-commerce
- Travel
In each of these six sectors, Naspers owns stakes in companies that possess a leading market position, if not the No. 1 spot.
“If you have ever ordered an online takeaway in Brazil, posted an online classified ad in Russia, or made a payment on India’s internet without using a credit card, there is a good chance that the service you used came via a Naspers company,” the Financial Times observes. “It owns the leader in each of these markets.”
The names of these companies — iFood, Avito and PayU — might draw blank stares from the Silicon Valley private equity crowd. But that suits Naspers just fine, as each of these businesses possesses a dominant market position.
For example, iFood is the leading online food-delivery platform in Latin America. Naspers owns 54% of it. In Europe, Naspers holds a 22% position in Germany-based Delivery Hero, a food delivery company that operates in 39 countries. Over in India, Naspers led a $1 billion funding round one year ago to obtain a 39% stake in food delivery platform Swiggy.
In fintech, Naspers owns a stake in PayU, the leading e-commerce payments company in India. PayU also processes payments in 19 other countries throughout Asia, Europe, Central America, Africa and the Middle East.
In the classifieds sector, Naspers owns OLX Group, a classified platform with a dominant presence in 34 countries, including Argentina, India, Indonesia, Ukraine, and South Africa. Here in the United States, Naspers has invested half a billion dollars in Letgo, a mobile classifieds app that competes with Craigslist.
Letgo is yet to make a profit, but Naspers’ classifieds businesses overall, which have 340 million monthly users, are now profitable.
To continue stoking the fires of future investment gains, Naspers sold a sliver of its Tencent position last year. By reducing its stake to 31.2% from 33.2% in March 2018, Naspers amassed a $9.8 billion war chest to make new investments.
The company’s wheeling and dealing continues.
And so does exponential progress in computing power, data storage, telecommunications gear and other technologies that are driving the success of Naspers and tech firms throughout the world.
That makes companies like these solid investment opportunities.
Yet this exponential progress also has a dark side.
Don’t Get Blockbustered
The destruction of seemingly strong and dominant businesses like Blockbuster by innovative technology-focused upstarts is a story we see over and over and over in America…
- In 2009, Travis Kalanick and Garrett Camp founded the ride-hailing company Uber (NYSE:UBER). In less than seven years, Uber demolished the “old” taxi industry while making its founders billionaires.
- During the 10-year period from mid-2009 to mid-2019, shares of tech-focused Amazon (NASDAQ:AMZN) soared more than 2,000%, making Jeff Bezos the world’s richest man. Meanwhile, dozens of old-school brick-and-mortar retailers were driven into bankruptcy.
- A study of the newspaper industry conducted by the University of North Carolina reported that almost 1,800 newspapers ceased publication from 2004 to 2018. Vast amounts of cheap online content killed many newspapers that followed the “old” media business model.
Year after year, we watch established businesses that appear sturdy and in control of their markets get utterly destroyed by upstarts.
In many cases, these businesses employ tens of thousands of workers … and are cornerstones of retirement accounts. But the seeming strength of these businesses often hides their underlying weakness. Companies that fail to adapt die a slow but certain death.
The rate at which these huge disruptions occur will speed up over the coming decade.
They will make the wealth gap between those who are caught up in this disruption and those who know how to profit from it grow wider every year.
You want to make sure you’re on the right side of this “Technochasm.”
You want to make sure you and your portfolio don’t get “Blockbustered.”
I recently traveled to the most expensive zip code in America to reveal everything I’ve learned about this phenomenon.
The “Technochasm” can be a frightening story — but once you come to understand it, this concept can help investors make a lot of money.
P.S. Something remarkable happened to me recently while visiting America’s richest zip code, which is located far from Manhattan, Palm Beach and Beverly Hills. First, someone smashed my car windows and stole thousands of dollars’ worth of video equipment.
But the good news is, I also found an incredible opportunity that could make you a lot of money — and it has nothing to do with real estate. I think this could be my next 1,000% winner. I’m giving away the details here.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.
