For clues about tomorrow's best stocks, I listen to Mary Meeker.
A former Morgan Stanley equity analyst, Ms. Meeker is now a general partner at Kleiner Perkins Caufield & Byers, a Silicon Valley venture capital firm. She has an insider's perspective on what is happening in the online world and a knack for packaging it into pithy insights.
Her presentation at the All Things D technology conference last week is now available for online viewing on her company's website and should be required material for anyone thinking of investing in tech stocks. Here's my take on the key themes that emerge from her talk:
1. Brace yourself for an advertising shift.
Ms. Meeker points to a glaring disjunction between advertising dollars and actual media usage.
Americans spend only 6 per cent of their media-consumption time on print media in a typical day but 23 per cent of advertising still goes to this medium. It seems a safe bet that this disproportionate situation isn't going to continue indefinitely.
So where will ad dollars flow? Think tablets and smartphones. Only 3 per cent of ad dollars are now going to mobile platforms but consumers spend 12 per cent of their media consumption time on these devices, Ms. Meeker says.
Make the entirely reasonable assumption that ad dollars will go where the eyeballs are, and $20-billion-plus in ad revenue is likely to redirected to mobile platforms in the years ahead in the United States alone. Who is likely to benefit most? To my mind, it's the established giants like Google Inc. and Facebook Inc. that already dominate mobile usage.
2. Mobile now drives everything.
The ad shift is just part of the goods news for those betting on mobile. Ms. Meeker's slides show that 15 per cent of Internet traffic now comes from mobile devices; she suggests it could hit 30 per cent by the end of 2014.
As ambitious as that sounds, the numbers suggest even greater growth lies ahead. There are "only" 1.5 billion smartphone users around the world today, yet there are over five billion mobile phone users. If you assume all those mobile phone users will eventually buy smartphones, the market for mobile apps and services is likely to grow at least threefold from today's levels.
Tablets are the other mobile trend to watch. Tablet shipments exceeded desktop PC shipments in the fourth quarter of 2012 and show no signs of slowing.
How do you bet on this trend? I think you stick with the current leaders. Ms. Meeker's figures show that Apple Inc. is leading the tablet race with 51-per-cent market share in 2012. Samsung Electronics Co. Ltd., with a 13-per-cent market share, holds down second place.
3. Video is hot.
Google's YouTube service is the 800-pound gorilla in online video and is getting bigger by the second. In May, people uploaded about 100 hours of video to YouTube every minute of the day. That is an increase of about 40 per cent from a year before.
But there is even faster growth happening on Twitter's new Vine service, which allows mobile users to share six-second videos. Introduced in January of this year, the service has been doubling its user base every month.
Until this month, it was exclusively available on the iPhone, and almost 8 per cent of iPhone users in the U.S. are now Vine users. If Vine can continue this meteoric growth, it is going to be a major growth opportunity for Twitter.
4. Facebook is dominant – for now.
Ms. Meeker looked at trends in social media as illustrated in a recent survey. Two thousand people aged 12 to 64 were asked a simple question, "Which of the following social media do you use?"
Facebook took the top spot with 93 per cent of surveyed people using the service – but this was down from 96 per cent a year earlier. YouTube was second with 62 per cent of respondents, up from 45 per cent the year before.
Put it all together, and Ms. Meeker's data suggest that wireless Internet use on smartphones and tablets is still growing like a weed. Advertisers have not yet adjusted their spending, but a shift seems inevitable.
Google is probably best suited to prosper in this new world. Both through its core service as well as YouTube, it should benefit from growing mobile traffic and the rebalancing of advertising dollars to where the people are.
Apple is also a contender. It will benefit from the continuing rise of the tablet, so long as it keep its lead on Samsung and other contenders.
LinkedIn Corp. is intriguing because of its exposure to mobile advertising. If Twitter was public I'd be taking a very close look at it too. Facebook also merits attention, but investors should keep a close eye on whether it is maintaining its grip on users.
I own Google and Apple, both in my personal and Strategy Lab portfolios. I'm interested in each of these other stocks as well, but don't own them yet. If you have a sufficiently long-term outlook, Ms. Meeker's presentation provides excellent reasons why you may want to consider them as well.