In case you haven´t heard, Internet and related technologies are dramatically affecting different industries and even changing the world all around us. Amazon (AMZN -1.14%), Netflix (NFLX -0.51%) and Priceline (BKNG -0.40%) are three leading innovative companies positioned for disruptive growth in the long term. Not only are all three of these businesses changing the lives of consumers their actions have important implications for investors as well.
Amazon, the online retail king
Amazon is clearly the most disruptive force in the retail industry over the last years. Its cost advantages, innovative drive, scale and customer focus have allowed the online retailer to gain participation in different categories in a relatively short period of time.
Amazon has gone from an online bookstore to a major retailer selling almost anything, from diapers to electronics. The company has also expanded to other business areas with intriguing prospects like online content, hardware and cloud computing services.
Revenues have increased at a remarkable growth rate of 31.5% annually from 2002 to 2012 and Amazon continues delivering spectacular growth for a company of its size. Net sales increased 24% to $17.09 billion in the third quarter of 2013, compared with $13.81 billion in the same quarter of the previous year.
Amazon reported a big increase of 48% in operating cash flows for the previous 12 months, but the company is spending its money aggressively in areas like technology, content and infrastructure, so free cash flows decreased 63% to $388 million for the year. Amazon also lost money on a GAAP accounting basis during the quarter.
When analyzing a position in Amazon, investors need to consider the fact that the company is intensely focused on its long term growth opportunities as opposed to short term profit margins. This means that an investment would be almost impossible to justify in terms of current earnings.
On the other hand, for long term investors looking for a disruptive growth company in the retail space, Amazon is a fairly unique and extraordinary opportunity.
Watching Netflix grow
Like Amazon, Netflix is heavily investing for the future and leaving short term profitability aside in the search for long term growth opportunities. The company´s strategy is centered on building an unparalleled library of high-quality original content to attract more viewers to its platform and consolidate its leadership position in online video streaming for years to come.
Netflix is clearly moving in the right direction when it comes to subscriber growth and market dominance; the company had more than 40 million global subscribers as of the latest earnings release, up from 30 million in the same quarter of the previous year.
A Sandvine Internet traffic report discussed on PCMag.com claims that Netflix is the undisputed leader in video streaming in the U.S. by a wide margin. According to this data, Netflix accounts for 31.6% of all peak downstream traffic, followed by YouTube with 18.6%, while competitors like Amazon Video and Hulu come far behind, with 1.6% and 1.3% of downstream traffic, respectively.
Even if competitive pressures are on the rise, Netflix has the first mover advantage. The company's large user base, internal recommendation software, and proprietary technologies provide an edge when it's deciding which content to acquire or produce in the coming years.
Streaming is an exciting area with plenty of room for expansion, both in the U.S. and abroad, and Netflix is a top dog in a privileged position to capitalize on those opportunities.
Priceline continues gaining altitude
Just like retail and video are being disrupted by new technologies, online travel agencies are changing the way we make travel reservations, and Priceline (BKNG -0.40%) is an industry leader in that segment delivering sky high profitability for shareholders.
Through its sites Priceline.com, Booking.com, Agoda.com, and rentalcars.com, Priceline is a leading online travel agency that offers booking services for hotel rooms, airline tickets, rental cars, cruises, and other vacation packages. While Expedia (EXPE -0.33%) competes head-to-head against Priceline in the United States, Priceline is much stronger in Europe, where Booking.com generates a big chunk of the company's profits.
Priceline has increased sales at an amazing 30.6% annually over the last five years, clearly outgrowing Expedia which delivered an annual increase of 8.6% per year over the same period. As of the last quarter Priceline had quarterly revenues of $2.27 billion versus a smaller $1.4 billion for its closest competitor, Expedia.
Unlike Amazon or Netflix, Priceline doesn´t need to sacrifice short term profitability in exchange for long term growth. The company has big fat operating margins above 35% of revenue due to economies of scale in an industry with relatively low capital requirements.
The company continued firing on all cylinders during the third quarter, revenues grew by 33.5% versus the prior year and Non-GAAP net income grew at an even stronger 44.2% to $920 million. This online travel leader continues gaining altitude at full speed.
Bottom line
Innovation and disruption can be powerful growth drivers for your portfolio in the long term. Companies like Amazon, Netflix and Priceline are positioned to win by leading technological change in retail, video and travel respectively. These trends can have major implications for investors as well and it would be foolish - not in the good way - to investigate further. As always Foolish investors should always do their own research before making any investment decisions.
