October 25, 2019
As I've said, with the regulatory screws tightening on the disruptors, we may finally be entering the stage where we see the disrupted/survivors, competing, if not beating the disruptors. If the "giants of industry" have moved aggressively to align with the changing economy, they have the distribution, in many cases, to be the ultimate winner.
We're seeing it with Microsoft and Amazon (maybe signs of it).
Remember, thanks to the strategy reset that took place five years ago, Microsoft is part of the duopoly in cloud computing (and taking share). MSFT grew cloud revenue by 59% last quarter. Amazon grew AWS (cloud) revenue at 35%, the slowest rate in the five years. How have the stocks done?
Microsoft has transformed and become one of two trillion-dollar companies (along with Apple).
Let’s revisit the Walmart/Amazon battle too — another great example. The market has priced Amazon like a runaway monopoly — killer of all industries, especially retail. And the perception has been that Walmart was destined to become another rise and fall story of a dominant American retailer. Sears, Toys R Us and about 70 other retailers have gone under in the last four years.
But Walmart has been transforming.
Walmart has been aggressively investing in online. They bought Jet.com in 2016, an American online retailer. That same year they took a large stake in the number two online retailer in China, JD.com.
JD.com already has a big share of ecommerce in China. They are number two to Alibaba, but gaining ground due to some clear competitive advantages. JD owns and controls its logistics infrastructure, and does quality control from the supplier to delivery. And unlike Alibaba, JD sources product to its warehouses to fight the counterfeit goods risk – a big problem in China. JD has 500+ warehouses around the country, and they now source product and service customers from one of the more than 400 Walmart stores in China.
So Walmart is positioned well to take advantage of the growth in the middle class in China. Amazon has yet to find its way in China. It has about 1% market share. Add to this, Google came in last year with a $550 million investment to help position JD to challenge Alibaba and Amazon on a global scale. Walmart is still about a third of the value of Amazon, but the gap has been closing (slowly).
Lastly, let's look at Netflix and the response underway at Disney. In recent years, Netflix has been thought to be taking over the entertainment industry with its disruptive direct-to-consumer model.
Fox responded early and aggressively (thanks the activist investor, Jeff Ubben). They made an aggressive move to build the direct-to-consumer model (taking stakes in Hulu, Star India and Sky). That set the company up as an acquisition target. And now with the Disney acquisition of Fox, Disney is positioned with a dominant duel threat — among the world's deepest and most valuable library of content and the distribution to take it to the consumer. This makes the world's preeminent entertainment company.
The result? Disney's valuation has leapfrogged Netflix. Disney now has a market cap of $236 billion. That's twice the value of Netflix now.