Megatrend – Shifting Workforce
As the “Gig” economy continues to expand, more and more professionals are working as freelancers, contract workers or consultants rather than as traditional employees.
As the “Gig” economy continues to expand, more and more professionals are working as freelancers, contract workers or consultants rather than as traditional employees. The “Gig” economy refers to freelancers of all stripes — those on online platforms like Uber and Lyft and also more traditional freelancers like plumbers and electricians. The gig economy is now estimated to be about 34% of the workforce and expected to be 43% by the year 2020. Consulting firm McKinsey says that there are currently around 68 million freelancers or self-employed in the US, with around 4 million Americans providing work through gig marketplaces like Lyft or Airbnb. The freelance economy is growing three times faster than the overall US workforce.
Intuit is a clear beneficiary of the growth in the gig economy as the leading provider of accounting solutions for small businesses (the QuickBooks franchise) and tax preparation solutions for consumers (TurboTax) in the United States. Intuit’s very strong competitive position is reflected in the high switching costs because of the time it takes to learn to use the majority of its applications. Importantly, Intuit has built a platform that links functionality among its multiple products, making users of one of the firm’s applications more likely to adopt an additional product as their needs expand.
The company has moved away from being a North American desktop software company to a global cloud-driven product and platform company. This transition to a cloud-based platform has resulted in an increase in recurring revenue and makes it easier to bundle and cross-sell its services to customers. This has resulted in Intuit expanding their total addressable market for QuickBooks to 224 million prospects from what had been 20 million prospects. Intuit has also recently introduced TurboTax Live creating an additional $20 billion total addressable market that they have historically not been able to serve. Intuit is a high ROIC business with a long run way of growth benefitting from the shifting workforce megatrend.
What are Global Megatrends
A global megatrend can be defined as a gathering wave of change that is nearly impossible to reverse, significantly influences the future, possesses an aura of inevitability and has a far and wide-reaching impact on society. Megatrends result from a convergence of different underlying trends including innovation, technology, natural events, politics, demographics, social attitudes and lifestyles.
Industries benefitting from global megatrends have the following attributes;
- Enduring and global reach
- Long term in nature (10+ years)
- Disruptive in nature
Examples of global megatrends includes the significant shift in the global population towards millennials and centennials, the rise in robotic-assisted surgery and the changing consumer preference towards spending on travel and experiences.
Why Insync invest in quality companies benefitting from global megatrends
Insync focuses on investing in highly profitable companies benefitting from global megatrends as it provides the businesses with a long runway of assured growth. As megatrends tend to be long term in nature and are less dependent on the economic cycle they also help us reduce investment risk by being more resilient during economic and market downturn. This allows us to take a longer-term approach to holding stocks and reduces the cost of trading. The universe of quality stocks within identified megatrends is narrow, and thus results in a high concentration and high conviction portfolio.
Insync focus on investing in the right part of the megatrend, where the trend growth is established and accelerating, as it provides opportunities to invest in companies where the opportunities for growth are sustainable and underappreciated by the market. As a general rule, investment into early stage trends can come at significant risks and need to be monitored very carefully. Many of these trends end up being shorter term in nature and highly speculative.
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