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What we got right in 2012/13
Here is a summary of the top ten predictions we got right over the last two years.
1. Mobile Internet
In “10 Tech Predictions for 2013” (23 January 2013) we highlighted that maps would become the new
battleground for supremacy in the mobile internet. Since then Google bought Waze for $1.2bn despite owning
the leading maps software. Some analysts say this was just to prevent Apple and Facebook (who was in talks
to buy Waze too) from acquiring a maps app.
Looking ahead, the owners of the three best mapping software tools today are Google, Nokia and TomTom.
This year, we believe TomTom, in particular, remains a takeover target. Maps are important in mobile
commerce because Internet companies profit by building up personal profiles of us to allow them to target
services to us. Knowing where you are and tracking where you have been every day over the last five years
helps to build that profile.
While TomTom has not been able to exploit its maps software because it has no broader internet ecosystem,
others like Apple, Amazon, Facebook, Tencent and Alibaba will find its maps assets attractive, especially with
a market cap of just €906m.
2. Connected devices
In “HTC vs. Google” (10 May 2011), we predicted HTC was overvalued and was on the verge of collapse
because of an asymmetric relationship with Google and its lack of an in-house operating system. Since then
HTC has fallen 80%.
In “Smartphones” (29 June 2012) we predicted that Huawei would threaten the dominance of western mobile
handset makers. In the four quarters since then, Huawei’s market share has remained steady at around 4.2%
of smartphone shipments. But in Q1 2013 China accounted for a third of smartphone shipments. Huawei, ZTE
and Xiaomi are gaining market share in China and pushing average prices down … impacting Apple (which
sees China as a growth market) more than Google.
Looking ahead, in “The Future of Technology, Media and Telecoms (July 2013) we predict that several new
entrants will create their own mobile ecosystems, either using a mobile operating system or a mobile web
browser as their entry platform. They include Amazon, Jolla, Mozilla, Alibaba, Huawei, UCweb, Easou, Twitter,
Facebook, Tizen, Ubuntu and Yahoo. Some of them may be successful. If they are, Google (which depends
more on its still dominant search engine) is less likely to be hurt than Apple (which depends on its expensive
operating system which drives device revenues). Moreover, Apple’s first mover advantage in terms of its app
ecosystem (with 900,000 native iOs apps) will be rapidly eroded by HTML 5 technology which allows new
platforms to have access to standardised web-based apps.
3. Cyber-Security
Yesterday, Cisco bought Sourcefire for $2.7bn. In “The Future of Technology, Media and Telecoms” (July
2013) we highlighted Sourcefire as a prime M&A target. Earlier, in “Cyber Security” (23 May 2013), we also
named Sourcefire as a beneficiary of the race to build software ecosystems.
This software ecosystem trend will benefit the entire software sector for the next year or so. We continue to
believe that software is the most undervalued sector within global tech and that within software, cyber-security
sector is the most undervalued element.
Application software stocks like Advent, Ansys, Citrix Systems, Concur Technologies, Dassault Systemes,
Intuit, Jive, NetSuite, Opera, Red Hat, Sage, VMware and Ultimate Software are likely to outperform over the
next 12 months.
As are cyber-security software companies like Fortinet, ProofPoint, Palo Alto Networks, Verint Systems,
Check Point Software, Qihoo 360 and Trend Micro.
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4. 3D printing
In “3D Printing” (9 April 2013), we predicted that the two leading 3D printer manufacturers – 3D Systems and
Stratasys – were overvalued. Since then these stocks have moved sideways.
We also predicted that the best way to play the 3D printing theme was to invest in 3D computer aided design
(CAD) software developers Dassault Systemes, PTC Corp and Autodesk. Since then Dassault Systemes and
PTC are up by around 20%, although Autodesk is down 10%.
We continue to believe these three CAD stocks will outperform in the next 12 months.
5. Mobile payments
In “10 Tech Predictions for 2013” (23 January 2013) we forecast that cloud-based mobile payment platforms
would overtake Near Field Communications (NFC) technology. The investment implications were that
software based mobile payments platforms like eBay, Square and Alibaba would win and NFC chip based
platforms like Google wallet and those supported by most telecom operators would lose. Six months on, this
prediction is appears correct.
Looking ahead we forecast that Google will ditch NFC and come up with its own cloud-based mobile payment
platform, but its decision to back the wrong technology will cost it dearly. Apple will also introduce a cloud-
based mobile payment technology. Monitise, a leader in cloud based banking platform solutions, should
benefit too. In China Alibaba and Tencent – the number one and two players in online payments – are likely to
lead in mobile payments too.
6. Robotics
In Robotics (26 April 2013), we predicted that leading industrial robot makers like Fanuc and Kuka would
move sideways as demand for industrial robots stalled.
In the personal robot space we picked iRobot as a winner and in the healthcare sector we predicted Mako
Surgical would rise, but Intuitive Surgical would be weighed down by litigation concerns. Our calls have been
spot on.
7. Internet advertising
In “Google vs. Baidu” (22 February 2012), we forecast that Google was undervalued and Baidu was
overvalued based on our estimates of their maximum potential top line growth. Since then Google is up 50%
and Baidu is down 30%.
8. Big Data
In “The Beginner’s Guide to Big Data” (15 October 2012), we concluded that there was no clear winner yet in
terms of data analytics software capable of solving the Big Data problem. Internet companies like Amazon,
Google and Facebook were the best in terms of fast, reliable in-house analysis of Big Data, but this theme
alone was not a reason to buy them.
We argued that investors who wanted exposure to the high-growth Big Data technology cycle could only pick
one stock: Informatica is an IT services company that specialises in implementing Big Data solutions for
enterprises. Since our report, Informatica is up 45%. It continues to remain on our conviction Buy list.
9. UK Tech Stock Picks
In “UK Tech Stocks to Watch” (20 November 2012), we picked four UK technology stocks that we believed to
be winners. They were Monitise (a mobile banking software platform), Bango (a mobile payment platform),
Innovation Group (insurance industry software) and Earthport (cross-border payments processor). Since our
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report, Earthport is up 60%, Innovation Group is up 40%, Monitise is up 10% and Bango is flat. Looking ahead,
Monitise remains on our conviction BUY list.
10. Social Media
When Facebook floated onto NASDAQ in May 2012 we forecast that it was overvalued in “The Facebook
Conundrum”. It is trading today at 45% below its IPO price.
What we got wrong
Our weakest call – thus far – has been on net neutrality.
Net neutrality
In “Net Neutrality” (10 June 2011), we argued that the principle of net neutrality – which provided that telecom
operators like AT&T were forbidden from charging internet content providers like Google and Facebook the
full cost of charging their data traffic – would fall apart. We concluded that if net neutrality rules – which were
enshrined in law in the USA, Netherlands and a handful of other countries – were relaxed by regulators then
telecom operators in those countries would see earnings upgrades.
Net neutrality has become a topical subject since then, but events have not transpired as we predicted. Whilst
US telecom operators like AT&T and Verizon are up 20% since our report on the back of their near duopoly in
the US, European operators have been weighed down by the EU debt crisis and by an aggressive EU
regulator and net neutrality has not been much of an issue in Asia.
Looking ahead, net neutrality still has a long way to go and is an investment theme investors should pay
attention to. Regulation in the telecoms sector will continue to be difficult to predict, but one thing is for sure.
Investment in telecom networks will slow down unless operators are certain they will reap a decent return on
their investment. Mobile operators today see data traffic rising at around 100% per annum but data tariffs
broadly static. That is a recipe for bankruptcy. At some point, regulators will have to address the issue of net
neutrality. We continue to believe that at some point regulators will have to find a way of allowing telecom
operators to charge internet companies like Apple and Google a tariff that bears some relation to the data
traffic that they are asked to carry.
