Embracing Disruption:

An Investor’s Perspective

What Is A Disruptor?

A company/product/concept that changes the

fundamentals of an industry and disrupts previously

successful business models

Industry Players

2016 Sales & ProfitsTarget & Wal-Mart

Amazon

$2.7 Billion

Sales:

Profits:

$554 Billion

$136 Billion

$16.3 Billion

Source: FactSet

But What Are They Worth?Target & Wal-Mart

Amazon

$255 Billion$433 Billion

Source: FactSet s of 3/19/2017

Race to $100 Billion in Sales

35 Years 21 Years

Source: http://corporate.walmart.com/our-story/our-history

4,601 U.S. Retail Stores

96 U.S. Fulfillment Centers

1,790 U.S. Retail Stores

Source: https://corporate.target.com/Careers/global-locationshttp://corporate.walmart.com/our-story/our-locationshttp://blog.taxjar.com/amazon-warehouse-locations/

• Roughly one out of every 10 Americans works in retail

20052006200720082009201020112012201320142015-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

AmazonWalmartTarget

Revenue Growth Rates

Source: FactSet

Better value

Convenience

Wide Selection

What is Amazon’s value proposition?

Which industries are less likely to get “Amazoned”

Physical experiences Leisure & Entertainment Education

Convenience – “want or need it now” Home Improvement / Auto Parts Prescription drugs / Convenience stores Pet food / supplies

Distribution / logistics issues Products with low price points / perishable

Personalization / Expert Advice / Installation Beauty salons / home furnishings

2015 Revenue: $7.88 Billion% of Revenue: 7.4%% of Operating Income: 41%YoY Growth Rate: 69.7%

2015 Revenue: $99.13 Billion% of Revenue: 92.6%% of Operating Income: 59%YoY Growth Rate: 17.5%

Not Just a Retailer

2013 2014 201516171819

Growth Rate (%)

2014 201545

60

75Growth Rate (%)

Source: FactSet

Cloud Competitors

Storing on “the Cloud”

= Storing on the Internet

Average Customer Savings From Using Amazon Web

Services:

64%

Source: https://aws.amazon.com/economics/

Maybe it’s not a surprise that in April 2017, IBM reported its 20th consecutive quarter of declining revenue!

“Cloud” Computing Losers

Mainframe & “legacy” hardware companies

“Licensed” software vs. subscription based

Info tech consultants

Winners

Telecom / Communications Infrastructure

Communications technologies

Storage & security

“Cloud” focused software & services

How Airbnb Works: Visiting

Go to airbnb.com to list your trip criteria.

Pick from the hundreds of listing results.

Welcome!

How Airbnb Works: Hosting

Sign Up.

Guests find your listing and book.

Welcome guests and get paid!

Airbnb’s Competitors

Number of Locations in Kansas City

30638235

Sources: http://www.starwoodhotels.com/corporate/directory/hotels/all/list.htmlhttp://www3.hilton.com/en/destinations/index.htmlhttp://www.marriott.com/search/default.miairbnb.com

What’s It Worth?

$16.9 Billion $22.17 Billion $30 Billion$12.6 Billion

Source: FactSetNY Times

What’s Airbnb’s Value Proposition?

Better value

“You’re not visiting; you’re living.”

Ritz Carlton Hotel Listing

San Francisco, California

2 Queen Beds

400 sq. ft.

$519 Per Night

Source: http://www.ritzcarlton.com/en/hotels/california/san-francisco/rooms-suites/

San Francisco, California

2 Bedrooms, 3 BedsLaundry and parking included

Approximately 1,000 sq. ft.

$370 Per Night

Airbnb Listing

Source: airbnb.com

What Could Go Wrong?

WinnersHosts

Travelers

LosersHotel Industry

Travel AgenciesLocal Government

WinnersHosts

Travelers

Industry Competitors

Value Proposition

No Ads

Convenience

Price

Original Content

Minutes of Commercial Time Per Hour

Netflix

Ad-Free Time

Ad-Free TimeAd Time

Cable Television

25% Ads

Cable television averages 15 minutes of advertising

per hour.

0%Ads

Source: http://www.latimes.com/entertainment/envelope/cotown/

Convenience: Binge-WatchingWatching multiple episodes in one

sitting

70%

30%

Netflix Users

Binge-WatchersNon-Binge-Watchers

Binge-watchers average 5 episodes per sitting

Source: http://expandedramblings.com/index.php/netflix_statistics-facts/

Price Comparison

Average cable bill: $75-$100/month

Cable

Basic: $7.99/monthStandard:

$9.99/monthPremium:

$11.99/month

Netflix

HuluLimited Commercial:

$7.99/monthCommercial Free:

$11.99/month

SlingSling Orange:

$20/monthSling Blue: $25/month

YouTube Red$9.99/month

Amazon PrimeAmazon Prime:

$99/yearStudent Prime:

$49/year

Sources:money.cnn.comHulu.comNetflix.comYoutube.com/ReDSling.comAmazon.com/prime

Netflix Originals

HBO Originals

How Do They Make Money?

Subscriptions

Advertising

Cable Netflixvs.

2010 2011 2012 2013 2014 2015 2016 E2017

97.4 97.6 97.6 97.5 97.2 96.9 96.5 96.2

20.1 20.4 20.9 21.5 22.8 24.1 25.5 26.8

TV Subscribers Non-TV Subscribers

Cord-Cutting On The Rise

Source: http://www.businessinsider.com/decline-of-us-tv-subscribers-2015-4

2012 2013 2014 201520

25

30

35

40

45

50

27.1

33.4

39.1

44.7

U.S. Subscribers: Netflix

Year

Subscribers(millions)

Netflix Subscriber Growth

Source: FactSet

WinnersConsumersBroadband

Internet

LosersAdvertisers

Cable Companies

Content Providers

WinnersConsumersBroadband

Internet

Industry Competitors

Twitter LinkedIn Snapchat

Starbucks McDonalds Facebook

11 Million 68 Mil-lion

1.09 Bil-lion

Daily Users

Sources: starbucks.comanswers.comnewsroom.fb.com

But Not Just Facebook…

WhatsApp320

Million Daily Users

Oculus RiftThe Leader in Virtual Reality

Technology

Instagram300

Million Daily Users

Source: http://expandedramblings.com

How Does Facebook Advertising Work?

Facebook Activity

Internet Searche

s

Personalized Ads for

Each User

Success Stories75% incremental reach compared to TV11 point increase in brand awareness

2.3x increase in volume of subscription conversion25% decrease in cost per subscription

11.7% increase in brand awareness54% of audience (35 million people) reached in 3 days

23.6 million people reached in 3 days30% more views than the initial target

Source: https://www.facebook.com/business/success/

Industry Players

Uber Statistics

Over 8 million users

160,000 drivers300 cities

1 million rides per day

Source: expandedramblings.com

State Uber Taxi (+20% Tip)

% Savings

New York $17.75 $18.60 5%

Dallas $10.30 $13.50 24%

Detroit $12.30 $19.80 38%

Seattle $11.70 $19.20 39%

San Francisco $12.30 $20.70 41%

Chicago $9.50 $16.80 43%

Los Angeles $9.40 $19.62 52%*Data: Business Insider 2015

Cost: Uber Vs. TaxiA 5 mile, 10 minute trip:

Uber Is Cheaper In Every City!

The Cycle of Disruption

Lower Uber prices

compared to Taxis

Consumers use Uber instead of

Taxis

Drivers switch

from Taxi to Uber

More Uber drivers are available

Not Just A Car Service

Uber$68 Billion

What’s It Worth?

Hertz$4.7 Billion

Enterprise Holdings

$13.5 Billion

Source: skift.com

What’s It Worth?

Toyota$165

Billion

Uber$68

Billion

Ford$49

Billion

Honda$45

Billion

Source: Bloomberg

Winners

ConsumersLow-Skilled Workers

LosersTaxi Companies

Rental Car Companies

Local TransitLocal Government

Winners

ConsumersLow-Skilled Workers

Tesla’s ProductsElectric Cars

Model S Model X Model 3

Batteries

Who’s Buying Teslas?84% Male

77% Income over $100,000

25% Owned a Toyota

11% Owned a Mercedes

10% Owned a BMW

Majority male, younger and wealthier

Source: http://www.latimes.com/business/autos/http://www.cnbc.com/id/100970641

2015 U.S. Car Sales

115,262

Electric Vehicles

Total Vehicles

17.39 Million

Plug-In Hybrid Electric Vehicles

284,738

Source: http://www.csmonitor.com/Business/In-Gear/2016/0417/Global-electric-car-sales-on-the-risehttp://gas2.org/2016/06/07/new-iea-report-says-1-26-million-electric-cars-sold-2015/http://www.autoalliance.org/auto-marketplace/sales-data

China has already passed the U.S. in EVs

Source: http://www.latimes.com/business/autos/http://www.cnbc.com/id/100970641

Top 5 Electric Vehicles Sold In 2015

BMW i Series

BYD Qin PHEV

Mitsubishi Outlander

Nissan Leaf

Tesla Model S

0

10,000

20,000

30,000

40,000

50,000

60,000

Source: http://inhabitat.com/tesla-model-s-was-the-best-selling-electric-car-in-the-world-last-year/http://gas2.org/2016/02/13/bmw-i8-is-best-selling-hybrid-sports-car-in-the-world

Electric vehicle producton forecasts

EV battery cost forecasts

Goldman Sachs ForecastSeven things that may surprise you

1. Need a payback of 3 years for consumers to embrace Electric Vehicles Not likely to happen until 2025-2030

2. Battery efficiency improvements should eliminate the need of subsides by 2028

3. EVs are not necessarily eco-friendly CO2 emission volume depends greatly on energy source

used to generate the electricity

4. EVs only have 2/3 of the parts used in gasoline vehicles, but are very complex to manufacture

5. Future advances in internal combustion engines are likely to lag the massive improvements being achieved with EVs

Source:Goldman Sachs: Electric Vehicle Boom: ICE-ing The Combustion Engine., September 2017

Goldman Sachs ForecastSeven things that may surprise you

6. Raw material costs likely to remain a significant hurdle in lowering battery costs Lithium price has almost doubled in past three years For a rare metal, lithium is quite plentiful, but a highly

reactive element that poses difficulties when extracting and producing into battery grade material

Lithium supply / demand likely to remain tight towards 2025

Key U.S. companies – Albemarle and FMC Corp.

7. All solid-state batteries nearing viability Solid state batteries are the most promising successor to

lithium ion batteries Solid state has potential to double energy density and

substantially reduce recharge time and minimize degradation

Toyota aims to have an EV powered by an all solid state battery by 2022 – other top players incl. Sumitomo Electric, Panasonic, Nissan, Idemitsu, Ohara, LG, Philips, Namics & Sony

Source:Goldman Sachs: Electric Vehicle Boom: ICE-ing The Combustion Engine., September 2017

Tesla Powerwall Home Battery

The GigafactoryTesla’s Battery Factory

5.8 Million Sq. Ft.$5 Billion to Build

To Be Completed in the Next 4 Years

Source: http://www.npr.org/sections/alltechconsidered

Tesla and Solar City Merger

Designs and Installs Solar Power Systems

Designs and Manufactures Electric Cars and Battery

Components

Sun Solar Panel

Power Wall

Power Home & Car

The Vision

100% Renewable Energy

Break Even Analysis

Price of Power Wall: $3,000 x 4 Units = $12,000

Installation Costs & Supplies: $4,000

Solar Panel Cost (after tax credit): $21,000

Average Annual Electric Costs: $1,391

Average Amount Spent on Gas: $1,400Source:http://www.freecleansolar.com/What-is-the-price-cost-for-a-SolarCity-PV-system-s/4620.htmhttp://money.cnn.com/2015/05/01/technology/tesla-home-battery-price/index.htmlhttps://www.teslamotors.com/powerwallhttps://www.nerdwallet.com/blog/finance/save-money-putting-solar-panels-roof/http://money.cnn.com/2015/12/16/news/economy/gas-savings-this-year/

Break Even Analysis

1 Electric Vehicle

2 Electric Vehicles

13 Years 9 Years

Tesla’s Long Term Goal

Take Us Off the Grid!

WinnersElectric Utilities (Short

Term)Natural Gas

Alternative EnergyDeveloping Nations

LosersAuto IndustryEnergy Sector

OilGas Stations

Electric Utilities (Long Term)

WinnersElectric Utilities (Short

Term)Natural Gas

Alternative EnergyDeveloping Nations

Autonomous Driving

90% of car crashes involve human error

The Case for Autonomous Driving

If only 10 percent of the cars on the road were self-driving…

accidents would be cut by 211,000 a yeardeaths would drop by 1,100

the economic savings would hit $38 billion

When 90 percent of the cars are autonomous…4.2 million accidents would be avoided

21,700 lives would be spared the monetary savings would be $450 billion

Source: Eno Center for Transportation

Industry Players

Potential Impacts

Some key developments over the past year:

Uber’s Otto hauls Budweiser across Colorado in self-driving truck

Volvo Unveils SuperTruck at DOE, joins Stage 2 of Research Project

ZF and NVIDAI Announce Artificial Intelligence Systems for Autonomous Cars, Trucks & Industrial Applications

NXP’s new autonomous driving products focus on safety for self-drivin trucks

Scania to Trial the First Autonomous Truck Platoon

Driverless truck testing starts in Singapore / China

Tesla to Unveil Semi-truck in late 2017

Michigan Enacts New Autonomous Driving Legislation

Maryland Applies to Us DOT for Autonomous Vehicle Testing

Potential Impacts

Potential Impacts

Agricultural Markets

Europe's CNH Industrial, known for its Case IH tractor brand, unveiled an autonomous concept tractor in August 2016 in Iowa at the Farm Progress Show, one of the world's largest farm shows. CNH's autonomous tractor could presumably work unmanned around the clock and uses GPS and sensor technology. The grower could remotely monitor and control the machine using a device such as a tablet.

Agricultural MarketsCNH's autonomous tractor could come to market as early as 2020.

Deere and AGCO’s New Holland division, two rival farm machinery manufacturers, have similar technologies.

Goldman Sachs predicts farm technologies could become a $240 billion market opportunity for ag suppliers, with smaller driverless tractors a $45 billion market on its own.

Tens of billions could also be be spent on advanced tech for major farm uses such as precision fertilizer, planting, spraying and irrigation, Goldman predicts.

What To Watch

Drones

Industrial Automation

Cancer Treatment

Minimally-Invasive Robotic SurgeryArtificial Intelligence