Earlier this week, Citi held its annual Australia and New Zealand Investment Conference. Team AIM was present to hear from a wide range of companies, analysts and investment panels.
The most interesting and insightful presentation was by Mo Gawdat, the Chief Business Officer for Google X, titled ‘Technology Enablers and Disruptors’. Mo highlighted that his goal was to change the way people viewed the world and, after just 45 minutes, there was certainly a sense around the room that he had achieved this.
The internet has changed the fundamentals of how we do business. Absolutely anybody can innovate, and because of this disruption, can come from anywhere in the world. As a result, Mo believes that we will see things in the next 15-20 years that we have never even dreamed of – not even when watching science fiction films. He mentioned 3D printing as the start of ‘creating matter out of thin air’, and virtual reality as the start of telepathy. Technology is no longer the limiting factor and the ever-increasing computer processing power is key, particularly to areas such as machine learning.
A decade ago, Mo saw the medium-term winners of technology and disruption to be (1) the rise of cloud services; (2) the ubiquity of digital cameras; and (3) the declining cost of storage. If you had invested in any of these three themes, you would have lost money. Instead, the key was finding something that linked these together. In Google’s case, this was YouTube.
So, what are today’s medium-term winners? He believes they are the following:
- Machine Learning
- Robotics
- Virtual and Augmented Reality
- Life Sciences.
From an investing perspective, it’s clearly difficult to link these medium-term winners to key beneficiaries. Importantly, the exponential growth in modern technologies (Moore’s Law) causes consumers to adopt new products faster and faster. This means that the return on investment on new products is often realized a lot quicker than in the past. Often the feeder technologies provide the best opportunities. At AIM, we are continuing to look for investment opportunities at this ‘feeder’ level.
Towards the end of Mo’s discussion, he left the room with perhaps his most damning prediction: that he believes machine learning and robotics will be the last two innovations that humans make. From this point on, machines will be smarter than us. This then leads to the most pivotal question of our lifetimes: can we teach machines to be ethical and caring? Ultimately, we need to ensure, particularly from an ethical standpoint, that these machines have our best interests in hand.
Mo wrote his first novel earlier this year titled Solve for Happy: Engineer Your Path to Joy.
A second presentation that was of interest to AIM was the gaming panel, following on from my ALL note last week. Anthony Ball (Clubs NSW), Terry O’Hallaron (DWS Hospitality) and Danny Munk (Aster Group) combined to provide some industry insights into the current gaming environment.
The three panellists unanimously agreed that changes in government were unlikely to lead to regulatory changes and that the stable environment, particularly in NSW, should continue. They also highlighted that innovation from both slot producers and casinos/clubs was going to be the primary driver for revenue and profitability over the next decade. ALL was mentioned several times as an absolute market-leading product and because of its continued innovation and development.
Although they acknowledged that Scientific Games (SGMS US) has clearly improved their product offering and getting some traction, they reaffirmed our view that ALL would have to make mistakes in order to lose market share. As I mentioned last week, with the current product offering doing very well and highly anticipated games due to be released in early 2018, we remain confident in Aristocrat’s market position. This industry feedback gave us confidence in our high conviction long position in ALL.
The third panel that was of interest was on the impact of Amazon’s arrival into Australia. Although many of the potential impacts have been well publicised, it was interesting to hear the viewpoints of several industry participants (Australia Post, Appliances Online and eBay). It was clear that any branded, undifferentiated product would be the first to be hit by Amazon. One positive is that Amazon will increase the amount of online sales in Australia (~ 7% and growing at 15%) and this ‘rising tide’ could help other existing market players.
An interesting statement was “Amazon does not kill retailers, it kills bad retailers”. This is absolutely the case and Australian retailers will need to find value through either price, quality, range or convenience. If an Australian retailer has not yet addressed Amazon, they are likely to encounter significant issues. We believe that Amazon is likely to be more and more aggressive, particularly on price until it reaches its targets. We also agree with the view of AusPost and eBay that Amazon will bring its A-team to Australia, and they will likely see it as a key point in their global expansion plan.
All three participants agreed that continued investment and innovation is the best way to prepare for and overcome the threats. AusPost has recently launched “Shipster”, an alternative subscription model free shipping option that retailers can use as an alternative to Amazon. eBay instead said that it would continue to focus on the buying experience. Regardless, my view is that more will need to be done and all Australian retailers need to be prepared for the Amazon onslaught.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
