International Market Opportunities
As the post-Covid digital world continues to find its footing, many of the same growth themes have emerged in nearly every major country. Access to cloud computing, remote talent pools and expanded internet coverage have continued to level the playing field for global entrepreneurs. Here are some of the major trends to consider when investing internationally.
Revenue growth is an important sign of health for any company. It’s a simple way to confirm that the product market fit works, customers are happy and marketing efforts are working as planned. It’s a bit harder to manipulate revenue, especially when compared to the way a company can manipulate earnings.
In the US, half of public companies were not experiencing revenue growth prior to COVID. Post COVID, roughly 1/3rd of US public companies managed to continue to grow revenues at a rate greater than 5%. Unsurprisingly, many of these high growth companies are technology and innovation focused businesses in health care, biotech, digital banking, software, etc.
Outside of the US, the percentage of public companies with growing revenues is much lower. Post-COVID, roughly 15% of international public companies have managed to grow revenues above the 5% level. Many of these are also innovation and technology focused businesses in the same industries listed above.
Canada, Brazil, and other examples
In Canada, Shopify has been a rising star for many years and has a very bright future. It’s one of the five largest companies in the country. However, the other four large companies are three banks and one railroad, all of which had shrinking revenue over the past year. Shopify’s revenue was up over 70% over the same time period.
In Brazil, the top two companies are oil companies, Vale and Petrobras. Investing broadly in Brazil means going long oil. 20% of the index is made of those two companies.
In the EU, Adyen is a leader in the digital finance revolution, Spotify is a household name in music and podcasts and Ocado is creating the next generation of robotic grocery automation. These are not the largest companies in the EU by any means, but they are some of the fastest growing.
In the US, the largest technology businesses have already come to dominate the top of the S&P 500. Eventually, fast growing scalable technology companies will dominate the global markets as they offer savings and speed while unlocking entirely new possibilities. That may be sooner rather than later as catalysts like COVID have dramatically increased the pace of this transformation.
Futuristic examples are everywhere
For e-commerce, once the pandemic is over people are still going to want to shop on the internet. Sea Ltd in Singapore, Mercadolibre in LatAm, Shopify in Canada and Amazon in the US are all leading the way in e-commerce solutions. Not to mention the ones in China (which deserve a separate article altogether on both the opportunities and the significant risks).
We wrote last week about how semiconductor companies are essential to modern life. All of the world’s semiconductors are created in Asia. The most advanced and fastest semiconductors – a small and leading edge product – are made using machines by ASML. AMSL in the Netherlands is one of the most sophisticated technology businesses in the world.
Each of these companies have experienced excellent performance this year. Following the close of the Covid chapter over the next few years, we believe e-commerce, semiconductors and other leading innovative themes will continue to play a central role in our daily lives. Despite many high valuations today, we expect these themes to be the primary driver of returns for many years. Entry point is more of a challenge recently and a close look at valuations is strongly recommended before allocating new capital.
Adapters, Disruptors and Victims
“In Technology, whatever can be done will be done” ― Andrew S. Grove, former leader of Intel and author of Only the Paranoid Survive. There will always be pessimists that underestimate the creativity and potential of innovators. Kodak invented digital photo storage but never used it themselves. Eventually it cost them their business entirely. If you believe Andy Grove is correct in his quote above, then AI, cloud computing and fully autonomous vehicles will eventually become the norm.
There are opportunities in these innovation growth curves. Current major companies will need to focus on adaptation because it’s easier than ever to launch a disruptive business or new brand in 2020. The victims will likely be the businesses that go against the major trends, like many oil companies have experienced this year. You can read more about our major themes here.