She’s one of the best in the business at spotting major tech trends before they happen.And since we’re all about spotting big trends early, too, venture capitalist Mary Meeker is well worth our time and attention.Particularly right now, too.Each year, Meeker releases a comprehensive PowerPoint presentation on the state of the internet.“From the funding climate to smartphone adoption to tech giants to cutting-edge inventions, the Mary Meeker Internet Trends report has it all,” writes TechCrunch’s Josh Constine.He’s right.Plus, there’s something about seeing data represented visually that drives home the significance of trends more powerfully.More importantly, it highlights their investment potential.There’s just one problem: I’m guessing you don’t have the time to sift through all 213 slides. (Told you it was comprehensive!)I’m here to help. I’m going to give you the “Cliffs Notes” version of Meeker’s 2016 Internet Trends report.Here are five of the most fascinating stats and charts she shared – and of course, their investment implications…~ Tech Stat #1: Old (Advertising) Habits Die HardAs the old saying goes, “Advertising follows eyeballs.” So why is it that companies still refuse to accept this reality?Ad spending on print, radio, and TV accounted for 65% of total advertising spending… even though people spend 53% of their total time in those legacy media.As you can see, the biggest disconnect and opportunity exists in mobile advertising. Ad spending needs to roughly double from current levels to reach equilibrium.
Cashing in on this trend couldn’t be more straightforward – own the platforms that serve up the majority of ads.That leads us to Alphabet Inc. (GOOGL) and Facebook Inc. (FB). Combined, the companies control 76% of the U.S. advertising market, according to Meeker.~ Tech Stat #2: Amazon (and E-Commerce) Eating the WorldAs billionaire chairman of Sears Holdings Corporation (SHLD), Eddie Lampert, is learning the hard way, brick-and-mortar retail is on its deathbed.That’s because consumers are doing more shopping online.Anecdotally, I’m sure we’ve all realized the change in our personal shopping habits. But as you can see, this is a widespread phenomenon. More than 10% of retail purchases are now made online. And there’s no end in sight to the growth.
The investment implications couldn’t be more obvious.Avoid (or consider selling short) old-school, struggling retailers like Macy’s Inc. (M) and J. C. Penney Company Inc. (JCP), and own the undisputed king of online retailing, Amazon.com Inc. (AMZN).~ Tech Stat #3: There’s Only One Social Media Network That MattersI’ve spilled plenty of pixels bashing the long-term potential for social media darling turned dud, Twitter Inc. (TWTR).Thanks to Meeker, all I have to do now is point to this picture.
While Baby Boomers have been the engine of economic growth for decades, it’s now the Millennials’ turn. There are now more Millennials (87 million) than Boomers (76 million). And their preference for social media platforms is clear.In terms of time spent and penetration, there’s Facebook and everyone else. If you’re going to own any social media stocks, there’s only one choice.~ Tech Stat #4: Machine Speech Recognition Now Matches HumansFrom Amazon’s Alexa to Apple Inc.’s (AAPL) Siri, virtual assistant use is on the rise.Heck, 20% of Google searches on Android devices are now voice.It also helps that voice interfaces are quick, easy, personalized, hands-free, and affordable.There’s a more important key trend underpinning this growth, though: More accurate voice recognition.In fact, machine speech recognition is now at human levels in low-noise environments, according to Meeker.
As for Siri, it still struggles with my wife’s Southern accent, so it’s clear that we need more tech advancement here.As Meeker points out, in addition to handling diverse speaker and accent characteristics, voice recognition in heavy background noise situations is the next frontier of innovation and growth.And that’s what makes smaller innovators in this space such compelling investments. I’m talking about guys like Nuance Communications Inc. (NUAN) and Kopin Corporation (KOPN).~ Tech Stat #5: Data Storage and Security ExplosionAs you know, our “always-on, always-connected” society means there’s an incredible amount of digital data being created.And there’s no end in sight, either.In fact, we churn out an astonishing 2.5 quintillion (that’s a one followed by 18 zeros) bytes of new data every day.The end result? As Meeker points out, global data growth is soaring at a 50% compound annual growth rate.Interestingly enough, as data volume climbs, storage costs are plummeting by about 20% per year.
This is one heck of a disconnect.There are two ways to profit from this situation – storage and security.Data center real estate investment trusts (REITs) like Digital Realty Trust Inc. (DLR), Equinix Inc. (EQIX), CoreSite Realty Corp. (COR), CyrusOne Inc. (CONE), DuPont Fabros Technology Inc. (DFT), and QTS Realty Trust Inc. (QTS) have all proved to be reliable performers.But as storage becomes increasingly cheap and commoditized, these businesses are going to face some headwinds.When it comes to security, however, I believe there’s unbounded upside.Think about it: It’s not enough to just store the data. We need to protect it all, too.It can be hard to picture the enormity of this expansion in digital terms.To help, though, try thinking about each byte of data and device as a landmass. The more bytes we produce – and the more devices in use – the larger the overall landmass gets. And every last inch of it needs to be defended against attack.Long story short – the cyber-attack “surface area” is growing at a dizzying pace.Cyber-security provider Proofpoint Inc. (PFPT) estimates that it will surge a staggering 44-fold over the next 10 years.That means the PureFunds ISE Cyber Security ETF (HACK) – and the individual companies in the ETF – promise to be standout performers.So there you have it. That’s my five most important takeaways from Mary Meeker’s presentation. And if you’re interested in the rest of it, you can read the full report here. It’s fascinating stuff.Ahead of the tape,Louis Basenese
