IT SECTOR ANALYSIS FOR INVESTING @themegacompounder @themegacompounder How are Business are Using the Tech @themegacompounder As differentiator & Disruptors, New customer acquisition @themegacompounder Fully digital/Digital First businesses @themegacompounder @themegacompounder @themegacompounder @themegacompounder Connected Cars @themegacompounder @themegacompounder Industry 4.0 @themegacompounder Take Aways so Far @themegacompounder Tech is a must have for Any business today To boost employee productivity To run/monitor the operations To analyze customer behavior Source/channel for revenue • Online/offline stores Modern business are digital First @themegacompounder Basic Needs in 2022 @themegacompounder • Tech is the Mega/Super Mega Trend • Software is eating the world • Tech is the new FMCG @themegacompounder But where is the money? @themegacompounder Trends in the Backend/ Industry Structure @themegacompounder Tech Company Types(Across world) Includes Listed and Private 1. Software Tech Providers/Hyperscalars: Offer Most things users and business need including digital first business • Microsoft, Google, Amazon 2. Hardware Tech Providers- Dell, Nvidia, Qualcomm, Broadcom, Texas Instruments etc 3. Social • Twitter, Meta, Google 4. Business Must Have(Sales/HR/Marketing, Cyber Security, Collaboration etc) - Zoom, Workday, Salesforce,Twilio, PaloAlto, Zscalar, Splunk Tenable, etc 5. Digital First (Use tech to run business) • Gaming Companies • Media(News, Music, Movies) • Marketplaces(Amazon, Wallmart) • Fintech(Wallets, Digital banks etc) • EdTech(Udemy, Byju etc) • Marketing Tech(Tanla, Route, Twillio, Affle) 6. Services provider: Provider people to guide, build, Operate and Manage Technologies used by businesses) - Accenture, IBM, Delloitte, PWC, KPMG, Capgemini, TCS, Wipro, HCL, Infosys etc) @themegacompounder What about numbers? @themegacompounder • Source: Happiest Mind DRHP @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder What about Markets @themegacompounder Top Companies in S&P500 and Nasdaq100 @themegacompounder How many of them are global brands? What did you Notice? Did you see any services company? @themegacompounder Lets Dig further @themegacompounder @themegacompounder @themegacompounder Brands • Azure: Cloud Services for hosting and building applications and managing data • LinkedIn • Skype • • • • GitHub: Software development Platform Mojang(Video game studio- Minecraft) aQuantive Type of business: Online advertising platform • ZeniMax Media: Video game publisher-The Elder Scrolls” and “Fallout. • Nuance Communications (Conversational AI solutions) • Activision Blizzard @themegacompounder @themegacompounder What are they doing? • Selling ideas,software/hardware for use by Mass • Selling products/services using cloud/internet based making easier to sell/use • Office 365- Office 365 Security • Azure Cloud- Azure Security, Azure data lake etc • Games- InApp Purchases • Marketplaces • Sharks have a ecosystem Play • Amazon(Software, hardware, services, product margins, advertising) • MS • Apple • FB • Google • They also invest in other companies that focus on emerging technologies @themegacompounder What are they selling Standalone Software OEM Software Internet based software(Sa aS) Infra to build software Marketplac es Hardware Apple Microsoft Google Amazon Facebook @themegacompounder Ads Gaming Services Streaming Services(Fitnes s, Music, Video) Data Stores What are they selling Brand Whos using? Apple End user Microsoft Enduser, Professional and Businesses, Technology Companies Google Enduser, Professional, Businesses, Technology Companies Amazon Enduser, Professional, Businesses, Technology Companies Facebook End User @themegacompounder Employment vs Revenue Ratio(2021) Some companies haven’t reported last qtr revenue yet Brand No of employees Revenue(USD) Apple 154,000 $365.81 B Microsoft 181,000 $45.3B Google 139,995 $257B Amazon 1.3 Million $457B Facebook 71,970 86B @themegacompounder Intellectual Property/Patents Source: https://insights.greyb.com/ @themegacompounder Gaming @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder Source: https://newzoo.com/insights/infographics/the-cloud-gaming-ecosystem-and-value-chain/ @themegacompounder Gaming Publishers Revenues • Activision - 8.80 billion • EA Sports-5.63 billion • Tencent- 74 Billion @themegacompounder @themegacompounder @themegacompounder Source: https://www.visualcapitalist.com/visualizingthe-biggest-gaming-company-acquisitions-ofall-time/ Cybersecurity @themegacompounder Cyber Security Sector • Must have for any business or end user today in any shape or form Source: https://www.globenewswire.com/news-release/2022/01/05/2361317/0/en/Cyber-Security-Market-to-ReachUSD-366-10-Billion-by-2028-Surging-Number-of-E-Commerce-Platforms-to-Amplify-Market-Growth-Says-FortuneBusiness-Insights.html @themegacompounder Source: https://www.fortunebusinessinsights.com/industry-reports/cyber-security-market-101165 @themegacompounder @themegacompounder Services Sector Provides people to build, operate and maintain systems used by businesses. @themegacompounder @themegacompounder How Tech Services Sector Works • End customers releases RFPs with a scope of work • Ex 1 - Build Focused Requirement • • • • • • • • • • Launch a new application for payments collection from vendors It should work in X no of countries Should be able to handle 100K unique users and 5K concurrent users Should allow uploading videos/pictures Should have a mobile app and work form web browser Should be secure(Hacking proof and if hacked shouldn’t lead to data loss of customers/users) Should stay up 99.99%of times per year(SLA) Should have good reporting. Supplier will have to manage the application for next 3-5 yrs(contract duration) etc @themegacompounder Response from Service providers Option 1 Resources Needed Supplier Build Application Inhouse Software developers, application architects who can create applications Existing employees/hire new employees Service provider that can provide 99.9% uptime Cloud Infra providers Google, Microsoft, Amazon etc Cyber security Features Cybersecurity software for various layers Network, Web application firewalls, Antivirus etc Option 2 Resources Needed Supplier Use a third party Application available in the market that is accessible over internet Resources that know that application and can work with customer to onboard end clients Existing employees/hire new employees Decision Criteria: Application Flexibility, Application performance Duration to implement, Resource cost etc @themegacompounder Ex- 2 • Operate Focused Requirement • I already have my application that I am hosting AWS/Azure and ensure that its securely running and doesn’t go down? • SolutionA) Provide a team of people who know: Know how AWS/Azure Works and what to configure to continous uptime. How to secure the application. B) Charge the customer for the length of this service by providing a cost per resource @themegacompounder Service providers Operations Summary • Build skillset for key requirements asked by the customers. • Application/Infra Design & Development • Application/Infra Operations • Application/Infra Maintenance etc • Build a partner ecosystem for top software providers in each area • Cloud Infra providers- Microsoft, Google, AWS etc • Cyber Security providers- Microsoft, AWS, Palo Alto, Google, Zscalar, Checkpoint etc • Hardware providers(Dell,pure storage etc) • Partners provide enablement on their products and Service providers make revenue by selling these products and keeping the margin @themegacompounder Accenture Source: SEC Filings 2021 @themegacompounder Accenture Services @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder @themegacompounder Did you notice any common themes? • IOT • Industry 4.0 • Platforms • Maintenance • Cloud • Cybersecurity • SAP, Oracle etc • Digital @themegacompounder Pls refer to their exchange filings for accurate data Company Revenue(Approx) No of employees Approx Margin Accenture 50 Billion USD 6,24,0000 15% TCS 20 Billion USD 5,28,748 27 Infosys 13.56 Billion USD 259,619 26 Wipro 10 Billion USD 231,671 20.5 HCL 10 Billion USD 197,777 24 LTI 509 MillionUSD 35,991 20.16 LTTS 198 Million USD 19,000+ 21 Mindtree 310.5 million USD 23,814 21.5 @themegacompounder Investing/Acquiring into other tech/services companies @themegacompounder @themegacompounder @themegacompounder @themegacompounder What did you notice • Most companies offer similar set of services on high level. • However, pls review their website, annual reports to understand the difference between each company. • Find Trends from there • They are also investing into Products and other services companies to add new skills and make more margin @themegacompounder TakeAway @themegacompounder All portfolios should have exposure to Tech Stocks @themegacompounder Consider this when you analyze a tech stock • • • • • • • Understand the sector/subsector very well. Tech moves very fast. Product vs Service Compare from Software, Hardware, Digital first, business must have or a services provider Is there a Ecosystems play? How easy it is to replace it? Any competitive moat? (Patents, scale etc) Is there an emerging tech that can kill this company? • Nokia vs Android • BHIM vs PayTM/PhonePe • Is the company going to use emerging tech to gain market share(new products/services) • Gaming company coming with metaverse play? • ICICI Bank using blockchain • Revenue per employee • Attrition rate • Always use Technofunda @themegacompounder Thanks @themegacompounder @themegacompounder
