There are few companies, sectors or industries that remain immune to the disruption caused by the growth and adoption of new technologies.
The breadth of new technologies – including but not limited to machine learning, internet-connected devices, artificial intelligence, robotics, cloud technologies, 3D printing, blockchain and cryptocurrencies - combined with the speed in which these technologies are developing and being embraced - is creating a huge number of exciting opportunities, as well as challenges, across the world.
The benefits of these technologies are being felt not just in consumers’ personal lives, but in productivity and revenue gains for businesses in areas including supply chain management, logistics, automation, manufacturing, compliance and fraud detection.
While there are tens of thousands of companies globally that play in each of these tech sectors, in this article we’ve focussed on three iconic companies that are not only established leaders in their respective fields, but also have the size, scale and firepower to invest in innovative R&D projects (think Google’s moonshot projects) to continue building momentum. Their strong balance sheets also allow them to acquire up and coming companies and gain market share rapidly.
Mastercard (NYES: MA)
MasterCard is a technology company focused on the global payments industry. It connects consumers, financial institutions, merchants, governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks. The company also offers a wide range of payment solutions that enables the development and implementation of credit, debit, prepaid, commercial and related payment programs and solutions for consumers and merchants. MA's platform includes the MasterCard, Maestro, and Cirrus brands.
Mastercard has 2.5 billion cards (including Mastercard-branded cards and Maestro cards) in circulation globally. The power of the Mastercard brand and its massive transaction processing network has provided long term gains for its investors. Over the last four years, revenue and earnings per share have increased by 58% and 81%, respectively. Mastercard enters 2019 on a strong note. After posting solid revenue gains in 2018, the company has signed several new partnerships with banks and card issuers around the world. On the digital front, management has secured commitments from numerous major banks to issue contactless cards over the next two years.
Microsoft (NASDAQ: MSFT)
Microsoft develops and markets software, services and hardware. The company's products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also designs and sells hardware devices including Surface RT and Surface Pro, the Xbox 360 and Xbox One Gaming and Entertainment Consoles, Kinect for Xbox 360, Xbox 360 and Xbox One accessories, and Microsoft PC accessories.
Microsoft is now the world’s largest corporation by market capitalisation (US$902Bn at 19/03/2019) and the stock is currently trading at all-time highs. Analysts believe that Microsoft has the potential to become the largest cloud company in the next 3-5 years as it closes the gap with Amazon.com in segment infrastructure and maintains its dominant position in productivity applications.
It has undergone a cultural shift under CEO Satya Nadella and has become a much more accessible company, embracing rivals and using more open-source software. These factors, coupled with a large installed base of legacy customers and rising spending on both on-premise and cloud products, should help sales increase by double digits for at least the next two years.
Key products, such as Azure and Office 365, are seeing continued steady demand. While the PC decline hurt consumer sales of Office 365, commercial client transactions have increased double digits. These results, along with 22% growth in commercial bookings, indicate stable enterprise IT spending in spite of various macroeconomic uncertainties.
Cisco Systems (NASDAQ: CSCO)
Cisco Systems Inc. provides Internet Protocol based networking products and solutions to the information and communications technology industry. It runs multiple business lines: Switching, Next-Generation Network (NGN) Routing, Service Provider Video, Collaboration, Data Centre, Wireless, Security, and Other Products. Cisco’s Internet of Things (IoT) line of products are primarily aimed at industries like oil & gas, manufacturing, utilities and transportation. Recently, Cisco has partnered with IBM to strengthen its IoT offering by providing a version of IBM’s Watson Analytics on networking and server hardware.
Cisco holds dominant share positions in most of its markets, with a stated goal to consistently be the #1 or #2 player. Switching is Cisco’s largest business at 29% of FY17 revenue, followed by routing at 16% of FY17 revenue. Effective Q1FY2018, Cisco categorized its revenues into the following segments, with the following revenue mix as of FY18: Infrastructure Platforms (57%), Applications (10%), Security (5%), Other Products (2%) and Services (26%).
Analysts believe Cisco’s outlook remains bright into 2019 / 2020 with new product ramps driving organic revenue growth. Cisco is also on track to end FY19 with operating margin of 31% on the back of the strong revenue growth in services and security. The move to recurring revenue models is also likely to drive multiple expansion. A return to growth in emerging markets should also provide upside. A dividend yield of 2.65% (with dividends / share growing at 15% p.a.) is rare in tech companies.
You can invest in these companies directly through Macrovue's Tech Stars Share Portfolio.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.
Past performance is not a reliable indicator of future performance.