In this high tech, photo-sharing, mobile-advertising, social-gaming, and disruptive high-tech world, what are the best investment strategies for companies that can lose their appeal overnight?
Swift changes
First, if you haven’t yet scanned Meeker’s report, take a look. Here are just a few examples of how things have changed in a few short years:
In 2005, Nokia Corporation (ADR) (NYSE:NOK)‘s Symbian smartphone operating system had more than 60% of the global market share. In the first quarter of 2013, Symbian, which is now discontinued as Nokia has moved to Windows Phone, took 0.6% of market share.
Facebook Inc (NASDAQ:FB) has dominated competitors in terms of number of photos uploaded and shared, with more than 300 million so far this year. The company made the defensive acquisition of Instagram to maintain its photo-sharing dominance. However, Snapchat, an application that allows users to send self-destructing photos and videos, is growing exponentially, with more than100 million photos shared this year. While Snapchat shared 20 million photos per day last October, about 150 million photos were shared in April.
Twitter’s Vine application, which allows users to record and share short six-second looping videos, has grown its user base from less than 2% of U.S. iPhones in January to nearly 8% in April.
Now 45% of Groupon Inc (NASDAQ:GRPN)‘s North American transactions are done through a mobile device, compared withjust 14% at the beginning of 2011.
What to look for when investing
A dynamic industry calls for several characteristics if a company is to survive and prosper.
First, a company should have visionary management that proves it has a pulse on coming trends. While a one-hit wonder company can make venture capitalists a tidy profit, when the company is publicly traded, the future opportunities need to be greater than the market believes for a regular investor to bank some gains. For example, ex-CEO of Groupon Inc (NASDAQ:GRPN) Andrew Mason created the entire industry of daily deals. However, as competition increased, Mason failed to innovate any new business that enticed investors while also failing to properly maintain Groupon Inc (NASDAQ:GRPN)’s accounting books.
Second, look for a company with the ability to crush coming competition. Whether it’s through patent battles, as with Apple Inc. (NASDAQ:AAPL) and Samsung; acquisitions, as with Facebook Inc (NASDAQ:FB) and Instagram; or political lobbying, as with Amazon.com, Inc. (NASDAQ:AMZN) and sales taxes, tech companies need to proactively take down competitors. Amazon.com, Inc. (NASDAQ:AMZN) was once opposed to collecting sales taxes, carving out deals with states to delay tax collection in exchange for job creation. Now that Amazon.com, Inc. (NASDAQ:AMZN)’s size can deal with the multitude of tax jurisdictions, collecting taxes puts it at an advantage over other smaller e-retailers that would have to work out the various tax codes without Amazon.com, Inc. (NASDAQ:AMZN)’s legal resources. And so, Amazon.com, Inc. (NASDAQ:AMZN) supports the Marketplace Fairness Act.
Finally, any tech company needs to be spreading its bets across a variety of future platforms. Google Inc (NASDAQ:GOOG) is the epitome of this approach. While advertising remains Google Inc (NASDAQ:GOOG)’s revenue generator, the company has its tendrils in self-driving cars and computerized glasses; $1 billion in renewable energy, including a recent acquisition of a kite-power start-up; and a growing presence in fiber TV and Internet. While many of these projects might flop, similar to Facebook Inc (NASDAQ:FB)’s attempt at a smartphone operating system, diversifying in future research is as good of an idea as it is for your own investment portfolio.
Dynamic investing
With such quick changes in the industry, you need to keep an closer eye on tech-related companies as compared with, say, cereal makers. Especially take a look at a tech company’s management, competitive strategy, and investments in future revenue generators. Next year’s “Internet Trends” report could have any number of new companies — just make sure the ones you invest in stick around. {%sfr%]
The article Winning Investment Strategies for the Tech Age originally appeared on Fool.com and is written by Dan Newman.
Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Facebook, and Google and owns shares of Apple, Amazon.com, Facebook, and Google.
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