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The investment strategy that we utilize at O’Neil Global Advisors focuses on identifying leading companies in disruptive industry groups which have the potential to outperform the general market. We identify investment themes that are fundamentally creating a sea-change within their respective sectors and industry groups. We have found that companies exemplifying these disruptive themes usually have increasing earnings and sales growth, and tend to outperform the market over a 12-18-month holding period. A few historical examples of disruptive investment themes include the railroad sector 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 through the “shared economy”.
Image 1: Sector: Railroads – Bethlehem Steel, 1914. Increased 1,400% in 99 weeks.
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Image 2: Sector: Aviation – National Airlines, 1962. Increased 1,004% in 179 weeks.
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Image 3: Internet Networking: Cisco Systems, 1990. Increased 1,602% in 169 weeks.
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The shared economy is a new economic model that leverages peer-to-peer (P2P) or shared access to goods and services, facilitated by online community-based platforms. These shared economy platforms are possible due to advances in technology that allow users to generate revenue from unused assets in numerous sectors, such as hospitality, transportation, and leisure. Revenue generated from companies within the shared economy theme 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 individuals.
Image 4: Sharing Economy Versus Traditional Operating Business Model.
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In addition to the advances in technology that have enabled the shared economy, consumer preferences have shifted in the Millennial and Gen Z demographics. This shift stems from a new generation that demands a high degree of personal interaction along with numerous customizable options. Consumers now want community-based experiences rather than transaction-based experiences, resulting in a systemic change in the way companies operate.
According to PWC, the European Commission has found that ~ 75% of the one billion cars that are on road today are each operated by one individual. Additionally, private vehicles go unused for 95% of their lifetime. Further, 43% of Americans view auto ownership as an inconvenience and a hassle. These combined factors create an opportunity for consumers to generate revenue from unused automotive assets. As a result, the sector that has most benefited from these changes is the transportation and mobility area.
The transportation sector enables both car-sharing and ride-sharing services that allow individuals to generate revenue from unused assets. Ride-sharing typically offers short rides to consumers, while car-sharing services offer individuals longer rides 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 revenues of more than $17.5 billion from over 101 million active users in over 900 metro areas worldwide. Similarly, Lyft, the second largest ride-sharing company, generates revenues of $3.2 billion annually in 644 cities in the USA and 12 in Canada.
Image 5: Transportation: Uber, 2022.
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Image 6: Transportation: Lyft, 2022
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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 an individual unused asset, which creates economic benefits for both parties. The leading company in this segment is Airbnb (NASDAQ: ABNB), with $6 billion in annual revenues. Airbnb has had exponential growth in the most recent quarters, with guest nights rising to 300 million in 2021, an increase of 55% versus 2020, demonstrating the validity of the home-sharing concept. The company has also achieved global scale, with over 6 million active listings in 220 countries and over 100,000 cities currently. To date, over one billion guests have stayed at an Airbnb. Demographically, Airbnb is very much on-trend, since 60% of its users are millennials.
Image 7: Hospitality: Airbnb, 2022.
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Traditional hotel companies using an old economic business model have taken notice of the growth in home-sharing programs, which is why Expedia (NASDAQ: EXPE) acquired home-sharing companies HomeAway and VRBO in recent years. Of note, Expedia also owns the brands Hotels.com, Orbitz, Travelocity, trivago, and CarRentals.com, and generated over $8 billion in revenue in 2021.
Image 8: Hospitality: Expedia, 2022.
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There are numerous small sectors that are also benefiting from the shared economy model. For example, platforms within the retail and fashion industries are enabling individuals to buy, sell, and rent clothes, resulting in a fundamental shift away from on-premise retailing and brick-and-mortar stores. One example is the recent IPO of Rent the Runway (NASDAQ: RENT), which was launched in November 2009 and allows users to rent or buy apparel and accessories from over 700 designers.
Image 9: Retail: Rent, 2022.
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Looking forward, strategic partnerships and the development of new products in the sharing economy should help accelerate future growth. The sharing economy is not only a disruptive and innovative investing theme, but also an opportunity for investors to generate wealth despite the challenging current market conditions.
Happy Hunting!
Randy Watts and Jason Thomson
Co-author statement
Jason Thomson, Portfolio Manager at O’Neil Global Advisors Inc. made significant contributions to the data compilation, analysis, and writing for this article.
Disclosure
No part of the authors’ compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein. O’Neil Global Advisors, its affiliates, and/or their respective officers, directors, or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein.
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