1. Apple Will Be the Best Performing FAANG Stock in 2020 (by Gene Munster). There are five reasons why we believe Apple will be the top-performing FAANG stock in 2020.
- Easy iPhone comparables
- Continued growth in Apple Watch
- Five new iPhone models in 2020
- Investor anticipation of 5G
- AAPL will be rewarded with a proper tech multiple
When compared to other tech and services companies, we consider the fair value for AAPL to be $350 (21% upside) to $400 (38% upside). Details here.
2. Tesla Will Exceed Street Deliveries Estimate of 463k (by Gene Munster). With the addition of China Gigafactory, which just started producing Model 3, along with the release of Model Y in the fall, we believe the company can grow deliveries by 28% in 2020 compared to the overall auto industry that will likely be flat. We expect Tesla to increase deliveries quarter-over-quarter, giving credibility to the belief that the electric car theme is here today and opening up a vast addressable market — 97% of cars sold today are internal combustion. If our prediction is correct, shares of TSLA will continue to move higher. Tesla is a pure-play investment in the undeniable truth that the future of the automotive industry is both electric and autonomous. We expect Tesla to exit next year with above 60% US EV market share, compared to about 75% today. As a point of reference, in 2018 GM lead the overall US auto market with 17% share.
3. Direct Listings Become a Well-Accepted Alternative to an IPO (by Doug Clinton). Expect at least three direct listings in 2020 to establish this fact. Both Airbnb and DoorDash are rumored to be considering it, as are many other private unicorns. Companies that successfully do a direct listing in 2020 will likely need to be close to profitable and have substantial cash in the bank or do a private financing shortly before the listing. While it won’t always be the case, 2020’s direct listing class will most likely consist of household names. The important thing for market participants to adapt to is how to judge the success of a direct listing: it’s not about the first-day pop, but rather the lack of it and more about the ongoing performance of the stock driven by the success of the underlying business.
The WeWork debacle and poor performance of many larger unicorn IPOs has created a pessimism around the late-stage financing markets. Some have even described the market as a bubble. However, large amounts of capital remain allocated for private deployment which we believe means the late-stage bubble isn’t the same as the Internet bubble in 2000. We expect to see a decrease in unicorn financings as less sophisticated and faster money that entered the late-stage game exits, but believe that valuations of those unicorns that do raise in 2020 will look similar to those of 2019 if only from fewer good companies chasing less smarter money.
4. Amazon Will Add 30 Amazon Go Stores (by Andrew Murphy). Amazon isn’t done with physical retail—not even close. The company hasn’t acquired another big retailer as we predicted they would in 2018, but 2020 will see the continued rollout of Amazon’s various physical retail formats (Amazon Go, Amazon Books, Amazon 4-Star, Whole Foods). Amazon doubled the number of physical retail stores (excluding Whole Foods) from 27 in 2018 to 54 by the end of 2019, including nearly 3x the number of Amazon Go stores (from ~9 in 2018 to 24 by the end of 2019). We expect Amazon to add another 30 Amazon Go stores in 2020, and we may also see Amazon open its first store with Amazon Go technology but in a location with a footprint larger than the typical 1,000 square foot Amazon Go locations that exist today.
5. Netflix Will Meet Paid Net Add Expectations (by Gene Munster). Despite the threat of increased competition, we believe Netflix will achieve analysts’ paid net add estimates in 2020. The Street is expecting paid net adds of 26.6m (domestic 2.7m international 23.9m) exiting next year with a base of 192.5m paid subscribers. Apple TV+ and Disney+are essentially free today through various promotions and Netflix can increase paid subs despite competition from Amazon’s Prime Video offering, which is also essentially free. Turning to 2021, consumers will have to make more thoughtful streaming decisions given promotional pricing from Apple TV+ and Disney+ will come to an end. We believe the increased competition will ultimately weigh on the Street’s 2021 paid net add estimates of 26.1m (domestic 2.5m, international 23.6m) in total exiting the year at 218.6m
6. 2020 Will Be a Year of Reckoning For Mobility (by Andrew Murphy). We are excited about all the innovation happening in mobility. Many of the same technologies that enabled the smartphone are enabling new forms of mobility — batteries, GPS, integrated software, etc. (see Horace Dedieu’s When Smartphones Get Wheels). In our view, new and better forms of mobility are an undeniable truth, given new capabilities in electrification, sensors, and autonomy. But 2020 will see consolidation amongst some of the largest mobility companies; specifically, we expect scooter startups like Bird to be consolidated by mobility aggregators like Uber and Lyft.
7. No AR Glasses from Apple or Facebook (by Gene Munster). We don’t expect any announcements from Apple or Facebook regarding augmented reality glasses in 2020. While Apple has yet to make any public comments confirming AR glasses, Facebook has announced they are working on their own pair. Despite their continued efforts, we are still at least three years away from seeing Apple or Facebook AR glasses in the market. Companies still need to lower the cost, figure out the right design, and identify killer use cases in order to drive sales. According to The Information, Magic Leap has only sold 6,000 headsets to date, indicating that these problems are not quite solved.
8. Oculus Will Release a New Quest with Hardware Improvements (by Gene Munster). Last year, we predicted that Oculus Quest would be the first VR headset ready for the mainstream. While the standalone headset has been well received, we believe Oculus needs to make further improvements in order to reach more widespread consumer adoption. This starts with a faster processor that allows for higher-end content on its standalone headsets. With better content, Oculus will also need to make ergonomic improvements so that the headsets are more comfortable for players to wear for longer sessions.
Here’s a look back at our 2019 tech predictions:
1. Apple will be the best performing FAANG stock in 2019 👍
- As of the December 26th close, Apple is up 83% year-to-date. Facebook is up 53%, Google is up 30%, Netflix is up 24% and Amazon is up 21%.
2. Reducing Technology Use Will Be a Top 10 New Year’s Resolution 👎
- The collective concern about device usage and social media addiction seemed to cool off throughout 2019 as our attention shifted to data privacy.
3. At Least Four $10B+ Tech Unicorns IPO 👍
- 2019 tech IPOs of more than $10B or more include Lyft, Uber, Slack, Zoom, Pinterest, and Chewy.
4. Despite Increased Competition, Tesla Will Maintain Its 50+% Market Share in the US 👍
- Through September 2019 (latest available data), Tesla has sold 75% (136k of 180k) of all battery electric vehicles in the US, according to the InsideEVs Sales Scorecard
5. Apple Will Launch a New Streaming Service 👍
- Apple announced Apple TV+ on March 25th, and the service launched on November 1st. There are nine shows available now and more than 20 in the works.
6. Legislation to Regulate Tech Company Data Usage Will Be Introduced and Passed 👎
- Formal legislation regarding data practices was not introduced at the federal level in 2019. However, signs are pointing to eventual regulation, as several presidential candidates cite it as a top issue, and the FTC and DOJ are actively investigating most of the tech giants.
7. Oculus Quest Will Be the First VR Headset Ready for the Mainstream 👎
- In October, it was reported that the Quest has sold nearly 400K units. The install base expanded further in the holiday season, evidenced by product sellouts and long lead times. While the install base remains small, user feedback has been positive. It’s clear that the Quest is a major step forward for VR.