Sharing is hip, disruptive and a potentially lucrative investment theme

These are hard times for materialists – because sharing rather than owning is trendy. That makes it more difficult to impress others by possessing many material things. And it is quite possible that it will become even harder in the future. At least, if forecasters are correct, since they expect that sharing instead of possessing will continue to grow in popularity.

In a comprehensive report, BofA Merrill Lynch (BofAML) addresses the topic of the sharing economy, which stands behind the above-mentioned trend. The authors of the report show that the term is not only an increasingly popular buzzword, but that it is also really starting to transform the world, which leads also to a growing investment opportunity.

With respect to the sharing trend, it is important to understand that this is not a vision of the future, but that it is already long in progress. According to BofAML, the emergence of the Sharing Economy – an umbrella term for a range of activities transacted over online platforms – is already transforming 21st century business. This happens via disruptive business models like on-demand (Uber), rental (Airbnb), gig (TaskRabbit), access (Spotify), collaboration (WeWork), platforms (Amazon), circular (ThredUP) and peer-to-peer (Lufax). As BofAML points out, these tech-focused models are unlocking the value of unused and under-used assets, driving a shift from asset-heavy to asset-light businesses and enabling access over ownership.

Thematic investing strategist Felix Tran estimates that the potential addressable Sharing Economy market is $2 trillion globally. He values the current market at $250 billion. The addressable market, according to him, is $785 billion in the U.S., $645 billion in Europe and $500 billion in China. Furthermore, he refers to a PwC forecast, according to which the Sharing Economy market opportunity could grow to $335 billion by 2025E (estimated). The consulting company expects transport, home sharing, streaming and staffing to be the fastest-growing verticals, with 2013-25E compound annual growth rates of 17 percent to 63 percent.

Sharing Economy attracts a pile of money

These are impressive numbers, and this also applies to the money invested in the theme. Quoting CB Insights 2017, BofA Merrill Lynch mentions that the Sharing Economy attracted $45 billion in global financing and investment in 2012-16. Of the funding, 75 percent has been allocated to only five companies (Uber, Airbnb, Lyft, Ola, Instacart). As a consequence of this, eight out of 10 of the largest startups in the world by valuation are Sharing Economy companies. On top of this, BofAML analysis shows that there are 40 potential unicorns (startups with a valuation $1 billion+) and 10 decacorns (startups with a valuation $10 billion+) in the space.

The decisive driving force behind all this is consumers, as they hit “peak stuff” and embrace a “shift to thrift” and the “experience economy” as BofAML explains. That thesis is underpinned by the fact that 72 percent of Americans have already used more than one Sharing Economy service, and two-thirds of consumers worldwide are willing to share or rent out their personal assets. Key drivers here are millennials and Gen Z (five times more likely to share than Boomers) and Emerging Markets (600 million involved in China). The Chinese Sharing Economy, for example, is expected to grow at an average annual rate of 40 percent over the next few years to account for more than 10 percent of the country’s GDP by 2020E ($1.7 trillion) and 20 percent by 2025E ($4.4 trillion).

Against this background it does not come as a big surprise that BofAML assumes that the Sharing Economy will eventually disrupt most sectors. According to Tran, an increasing number of companies will potentially fall victim to the creative destruction of a “Kodak moment.” Only 64 out of 1,600+ companies have been on the S&P 500 for 50 years. The “life expectancy” of S&P companies has fallen from 33 years in 1990 to 20 years today, and is forecast to shrink to 14 years by 2026E. Up to 50 percent of S&P companies are set to be replaced in the next 10 years. BofAML believes that the rise and eventual IPOs/M&A of Sharing Economy leaders such as Airbnb, Dropbox, Spotify and Uber, among others, will trigger even further disruption.

BofAML analysis has identified 12 broad industry sectors, which account for an aggregate $6 trillion, or 8 percent of global GDP, that are at risk of disruption over the long term. The 12 sectors are education, energy/waste, financials, food, logistics, storage and equipment, healthcare, cloud, staffing and services, media, retail, and travel/ leisure/work/transportation. It is believed by BofAML that many Sharing Economy companies could eventually address trillion+ rather than billion+ dollar markets in the most bullish scenario. Winners in the Sharing Economy space will include first settlers (companies that reach “liquidity” first), consolidators, technological leaders and content curators.

High risk and a high reward profile

For investors wishing to invest in the Sharing Economy theme, BofAML has mapped opportunities across several entry points, including transportation (Alphabet: Waymo autonomous vehicles, Waze P2P traffic sharing data; Yandex: “Uber of Russia,” launching carpooling); travel, leisure and workspace (Expedia: HomeAway is the No. 2 vacation rental actor; Priceline: vacation rental via Booking.com; Workspace: #1 London co-working office space provider); food (GrubHub: No. 1 U.S. food delivery; Seamless, launching own delivery riders; Ocado: No. 1 pure-play eGroceries, pioneer of online/on-demand model; Takeaway.com: EU online takeaway food marketplace); retail (eBay: secondhand and new goods, GumTree, StubHub, Twice resale; media (No. 1 social network Facebook, No. 1 photo-sharing Instagram, No. 1 message sharing WhatsApp); marketplace, workplace; Match Group, No. 1 dating, Tinder “on-demand” matchmaking, Netflix, No. 1 subscription video on demand, Vivendi, universal music content, music streaming); Cloud services and equipment (Ashtead, U.K. equipment rental supplier to live events like Glastonbury and Superbowl; Box, consumer cloud file sharing, expanding into enterprise; IAC, the “Uber of home services” with HomeAdvisor / Angie’s List merger; Intuit QuickBooks consumer tax assistance for gig economy workers); and platforms (Amazon.com, new and secondhand goods, AWS, delivery / logistics (Prime / Flex), food groceries via Fresh; music / video, Kindle; Alibaba, food (Ele.me), Ant Financial, Alipay, P2P wealth management, crowdfunding, social credit scoring Sesame Credit; Tencent Holdings transport, Didi, WeChat QR code payments).

Besides all the changes, BofAML states that there will also be many losers among the Sharing Economy disruptors. The Sharing Economy is also seen to face a significant number of challenges and obstacles, including regulation, workers’ rights and inequality. The space is under increasing scrutiny by the U.S. Department of Commerce, the European Commission, and the U.K. Parliament, among many others. Last but not least, there are also major labor and human resources challenges that have to be addressed. Altogether that sounds like an interesting playing field for investors searching for opportunities with a high risk and a high reward profile.

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