5 Game-Changing Companies to Watch
Robinson is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In his 1997 book, "The Innovator's Dilemma," Clayton Christensen defines a "disruptive innovation" as an innovation that creates a new value network and by doing so, disrupts an existing market value network. For investors, disruptive innovations make for appealing opportunities. Whether it be a small startup hitting a giant at the knees, or a giant undercutting another giant, disruptive innovations create opportunities for significant increases in market share. In this article, I will present five companies that are developing disruptive innovations.
1. Tesla Motors
Tesla Motors (NASDAQ: TSLA) is an American manufacturer of electric vehicles run by serial entrepreneur, Elon Musk. The company's second vehicle, the Model S, has been named the 2013 Motor Trend Car of the Year. Backed by investments from Toyota Motor and Daimler AG (Mercedes Benz), the Tesla Model S contains attributes derived from Mercedes quality and Toyota reliability.
We've had electric cars before, so what's the big deal with Tesla?
- Electric Network: Tesla is addressing the lack of electric infrastructure by teaming up with SolarCity to build a network of Supercharger stations. These stations charge at 120kW, providing 200 miles of range in just thirty minutes. The Supercharger network is projected to reach 98% of the U.S. population and some parts of Canada by 2015.
- Performance: The Model S is no Honda Insight. With 443 lb-ft of torque available at 0 RPM, the Model S outruns a BMW M5, making the Tesla desirable not just to environmentalists, but to enthusiasts as well.
- Production: The Model S Q1 production total exceeded that of the Chevy Volt and Nissan Leaf. General Motors CEO, Dan Akerson, recently put together a special team to keep an eye on Tesla.
- Future Plans: With plans for a more affordable Model X available in 2014, Tesla will expand down market into lower income homes.
2. 3D Systems
3D Systems (NYSE: DDD) is a leading manufacturer of stereolithography rapid prototyping machines and 3D printers. 3D printing has received a lot of hype and claims of it being a bubble. 3D printing provides an incredibly useful tool for engineers and designers, cutting down on the prototyping life cycle duration and cost. However, the technology faces challenges in build speed, part strength, and material range. If these challenges can be overcome, 3D printing presents a disruptive alternative to traditional manufacturing.
- Current Accolades: Regardless of the technology's ability to overcome the previously mentioned challenges, the ability to move from brainstorming to prototype within a day allows for quick iterations in the product design cycle - which is very valuable to engineering companies.
- Expansion: 3D printing is also slowly penetrating the public market through sales of small 3D printers such as the 3D Systems Cube, the Makerbot Replicator, or the Formlabs Form1. While prices for these machines are still out of the reach of the general public, adoption within the hobbyist market will help drive prices down.
Zillow (NASDAQ: Z) is revolutionizing the real estate industry through its interactive online marketplace. Anyone who has ever purchased or rented a home or apartment understands how challenging the process can be. Zillow simplifies the process of finding a home by providing a single source of information that includes everything you need to know to find a home.
- 100 Million: Zillow currently hosts photos, aerial views, information on local real estate markets, and historical home values for over 100 million homes in the U.S.
- Expanding Services: Zillow also provides advice and support on mortgage rates, neighborhood information (schools, demographics, etc.), and Zestimates (home market value estimates).
SodaStream (NASDAQ: SODA) is attempting to take down the soft drink giants, PepsiCo and Coca-Cola, through its home soda maker. Using compressed carbon dioxide and flavored syrups, SodaStream allows you to make soda on demand, eliminating the need for bottles and cans. SodaStream has made considerable progress in this David vs. Goliath battle over soft drinks since the unaired Superbowl commercial.
- Lowering Costs: With the SodaStream Source, a can of soda is said to only cost $0.25 per can. One carbonator cartridge makes 60 or 110 liters - equivalent to 170 or 310 aluminum cans. SodaStream provides an affordable alternative to traditional soft drinks.
Netflix (NASDAQ: NFLX) has already taken down Blockbuster and the rest of the movie rental industry through its DVD mail-in and online-streaming services. To quote Ted Sarandos, Netflix's chief content officer, "The goal is to become HBO faster than HBO can become us." The Netflix expansion into original content production is a step towards becoming the sole television and movie source for users. Netflix oringal series such has "House of Cards" and the return of "Arrested Development" have already received Emmy nominations.
- Binge Viewing: Netflix is sporting 29.2 million subscribers. These subscribers have spent a combined 2 billion hours watching streamed video online.
- Shear Volume: 30% of all U.S. internet traffic during peak hours uses Netflix.
Conclusion: Why look for disruptive companies?
Disruptive companies are game-changers - the type of companies that fit into Apple's "Think Different" category. These companies redefine industries by creating new value networks. Previously disruptive companies include Apple, eBay, and Amazon - all of which have seen tremendous stock growth. In this article, I have presented five disruptive companies that are still early on in their growth stories. Table 1 below explains why disruptive companies make rewarding investments.
|Table 1: Disruptive Companies 2013 Performance vs. S&P 500|
|Company||2013 Performance||2013 S&P 500 Performance||Disruptive Company vs.S&P|
|Tesla Motors (TSLA)||260.0%||17.8%||+ 242.2%|
|3D Systems (DDD)||29.9%||17.8%||+ 12.1%|
|Zillow (Z)||136.0%||17.8%||+ 118.2%|
|SodaStream (SODA)||28.9%||17.8%||+ 11.1%|
|Netflix (NFLX)||180.4%||17.8%||+ 162.6%
Robinson Greig owns shares of Tesla Motors , 3D Systems, and SodaStream. The Motley Fool recommends 3D Systems, Netflix, SodaStream, Tesla Motors , and Zillow. The Motley Fool owns shares of 3D Systems, Netflix, SodaStream, Tesla Motors , and Zillow and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!