Every year, Mary Meeker publishes the latest version of her “Internet Trends” report, which has grown to become quite famous in the technology investing community. Ms. Meeker, a partner at venture capital firm KPCB, has a knack for summarizing a wealth of data through a series of fascinating charts. I love reading through her presentation every year because it encourages us to think about trends that are playing out over a number of years rather than wasting time reacting to quarterly earnings.
Not surprisingly, the dominant theme in the 2014 edition of Meeker’s report is the continued growth of mobile Internet traffic. To be clear, we’re not talking about the total number of users on the Internet, all platforms. That figure is now quite mature, and growing less than 10 per cent per year. Instead, we’re talking about how much more time people are spending connecting to the Internet because of their mobile devices.
It might seem as though everyone we run into these days owns a smartphone or tablet. But the reality is very different on a global scale. Only 30 per cent of mobile phones are smartphones right now, and shipment rates are rising about 20 per cent per year. When it comes to tablets, the volumes are far lower but with much more aggressive growth – 52 per cent annually – than I believe we’ve ever seen in any consumer electronic product.
Compared to the billions of people in the world who use a television, did you know only 8 per cent of this number uses a tablet? With this one data point, I think Ms. Meeker makes it very clear just how much more growth there is to come in the form of mobile Internet traffic.
If you own a tablet and a TV, ask yourself which you’d keep if you were forced to pick only one. I suspect most would choose the tablet because it has far more overall utility. Ms. Meeker points out that mobile Internet traffic is accelerating with recent annual growth of 81 per cent. She says the primary driver of this growth is video, and I think social networking apps like Facebook often serve as video discovery mechanisms. Our kids are growing up in a world where, if they have access to one, the tablet is used far more often than the big screen. As an investor, I certainly want to be exposed to an industry that I believe will exhibit tenfold growth over the next decade.
When we started the Strategy Lab model portfolio project back in September, 2012, I believed in the importance of mobile. But I think I hugely underestimated its potential. That’s why I initially invested in Google Inc. but left Facebook Inc. on the sidelines. Ms. Meeker points out that Google generates six times more revenue per average user than Facebook does today. This isn’t a knock against Facebook at all. Remember – they’ve been in online advertising for a lot less time than Google. Ms. Meeker’s revenue comparison illustrates just how much growth potential Facebook has as they mature in the mobile ad space.
Google may have less online advertising growth potential versus Facebook, but the entire sector is still poised to exhibit huge growth. Ms. Meeker points out that 19 per cent of all advertising dollars are spent on print media, but only 5 per cent of our media consumption time is in print. Contrast that with only 4 per cent of ad dollars spent targeting mobile Internet users while we now spend an average of 20 per cent of our time consuming media on a mobile device. I expect this mismatch to dissipate over the next decade. Google and Facebook can both generate incredible growth. I’d rather own both stocks than have to pick only one.
If you invest in the technology sector, I highly recommend you check out Ms. Meeker’s fantastic presentation. It’s a wonderful place to begin thinking about how you can tune your portfolio to benefit from the growth of the mobile Internet.
The author owns Google and Facebook both personally and in his Strategy Lab model portfolio.