On This Day - 4 OCTOBER 2017
The Multibaggers that will Rise from the Ashes of Disruption
When Alibaba was still a young - but rapidly growing - business, an executive from Walmart congratulated its founder, Jack Ma, on doing a good job.
Maybe, Jack Ma told him, in 10 years we will surpass Walmart's sales.
The Walmart executive was amused. In response, Jack Ma suggested a wager. He bet that in 10 years, Alibaba's sales will beat Walmart.
It wasn't a reckless bet. Jack Ma knew he could win. To add 10,000 new customers, Walmart needs to set up a new warehouse. All Jack Ma needs is two servers.
As we know, it did not take long for Alibaba to take the top spot.
In 2016, it surpassed the US $482.1 billion revenue reported by Walmart Stores Inc.
When You're Asset-Light, It's Easier to Take Flight
This is not an exceptional case. Over the last decade, new age businesses have taken the wind out of the sails and wiped the smugness off the faces of some heavyweight players.
Amazon killed Barnes and Nobles. Airbnb is making the global hotel industry quake in its boots. In Mumbai, drivers of kali pili taxis keep going off on strikes, or tirades, against Uber and Ola.
I am perhaps a bit sceptical about investing in these new age businesses - what with their crazy valuations and cash guzzling business models - but there is no denying their power to disrupt, and their growth potential.
Not to mention, these businesses tend to be 'asset light': Airbnb does not own any real estate. Alibaba does not depend on warehouses to grow. And Uber and Ola don't own cabs. This allows them to scale up efficiently (like Ali Baba did).
Also, they make the most of technological advances.
We would love for you to own a business like this: asset light, disruptive, earns profits and is available at attractive valuations. So we've had our sights trained on the space...and we've spied something...
A few months ago, we stumbled upon a company that is earning robust returns in an industry where the largest players are bleeding.
It's not just that this company is fundamentally sound. It seems to be blessed by the Gods.
It's riding tailwinds from the growing domestic tourism, rising discretionary consumption, urbanisation, and the burgeoning middle-class population.
As a customer, I'm certainly loyal to them. And as an analyst, I believe they have a great future. I'm certain if you knew more you would be converted into a believer too.
Richa Agarwal (Research Analyst)
Editor, Hidden Treasure
Brain Food for the Day
A Platform of a Different Kind
Alibaba sprinting past retail giant Walmart was no fluke. This is what 'platform companies' are capable of.
A platform is the new game in town - a new business model that if executed right, unleashes exponential growth.
If you've ever posted your resume on Naukri.com or booked movie tickets via Bookmyshow.com, you've used the services of a platform company.
As the name suggests, a platform company adds value by facilitating an exchange between two or more interdependent groups. They don't make things. They simply connect people.
The online world is awash in platforms. Facebook, Amazon, Google, Uber, WhatsApp and of course Alibaba, are all platforms.
The driving force of these businesses is what is known as the Network Effect and as I mentioned earlier, since they are asset light, they can grow far beyond the limits of your traditional brick and mortar businesses and with great speed at that.
This explains why Alibaba could speed past Walmart.
Do all platform businesses have the potential to be multi-baggers? Maybe not. But it is certainly a good place to look for one.
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