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General Commentary
January 8, 2017

Tale As Old As Time…

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Market Snapshot

Indices Week YTD

Last week, in The Dream for ‘17, we looked “back” on 2017, the year that was. Spoiler alert: The World did not come to an end after the inauguration of our 45th president on January 20th.

This week, we’re reflecting on the global growth economy in 2016, by the numbers. It begins with GSV’s annual 10-Year Top Performing Stocks Study, which screens all publicly traded companies in the United States for the top 25 by total return over the past decade.

It is highly unlikely that GSV will fulfill its quest to find the “Stars of Tomorrow” by mining this list — success begets size, and size forges an anchor — but it is instructive to analyze the characteristics of top-performers.

While pizza might not seem like a growth industry — besides contributing to our obesity epidemic — number 6 on the list, Domino’s, surged in popularity with an ingenious app to track your order from click to home. Its stock CAGR outperformed Amazon (#7) and Google (Unranked) over the last decade.

10-Year Top Performing Stocks Study, 2006-2016
Top-25 Publicly Traded U.S. Companies by Total Return Over the Past Decade (through YE 2016)

Source: Capital IQ, GSViQ, NASDAQ, Wonda
*P/E starts at first profitable year

The median stock performance of the top 25 companies over the 10-year period was a 31% compound annual growth rate (CAGR) — which implies that stock value is nearly doubling every two years, according to the “Rule of 72.” The median market cap at the beginning of the period (12/31/06) was $145 million. These would have been Micro Cap companies by today’s standards.

The median P/E for the top performers at the beginning of the 10-year period was 19x, slightly higher than today’s Market multiple. But as we’ve learned from past studies, a low or discounted P/E isn’t an important variable for ascendent companies. P/E ratios are often already high at the beginning of a period of outperformance.

Top Performers Study Summary, 2006-2016
Prior Year Studies for Comparison

Source: Capital IQ, GSViQ, NASDAQ, Wonda

Cleary, that the secret to big success isn’t about finding beaten-down stocks. It’s about identifying the fastest growers.

The key trait of top performing stocks is that they always have high earnings growth for the period of outperformance. The median EPS growth of the top 25 companies in this year’s study was 29%. EARNINGS GROWTH DRIVES STOCK PRICE OVER TIME.

Thee top-performing stock in this year’s study was Tencent. Founded in 1998, the Chinese technology and social media powerhouse has seen its stock price grow at a 42% CAGR over the past decade, catalyzed by compounded annual earnings growth of 48% in the period.

Tencent’s top ranking is a notable reminder of the increasing impact China will have on global innovation and growth. Interestingly, conventional wisdom is that the China growth story is yesterday’s news.

But it’s just beginning.

A key catalyst is massive urbanization that is constant around the world but exploding in China. If you look at the United States, there are 10 cities with a population of one million or more. In China, there are 160. These are young people who are embracing technology, brands, and digital commerce. They’re getting ready to change the World.

And days of cheap labor and knock-off manufacturing are long gone. China is intent on creating its own consumer brands, exporting them and putting up roadblocks for foreign players. Today, Alibaba handles more transactions than Amazon (#7 in 2016 Study) and eBay combined — the company recorded $17.8 billion in sales over 24 hours for its annual “Singles Day” event earlier this year. Alipay, its payment platform spinout, counts over 400 million users — a group larger than the entire population of the United States.

Xiaomi (Mobile Devices; $46 billion market value), China Mobile (Mobile, $222 billion market value), Vipshop (Digital Retail, $7 billion market value), Baidu (Search & Internet Services, $61 billion market value; #15 in 2016 Study), and NetEase (Gaming & Media, $30 billion market value; #23 in 2016 Study) are just a few examples of what China has in store for the World.

For the third Ten-Year Study in a row, Priceline was the second-ranked performer, with a 42% stock price CAGR over the past decade. Its 44% annual earnings growth rate ranked among the top companies on this list, but dropped significantly off its remarkable 62% growth rate for the 2005-2015 decade span.

Netflix came in at third. Interestingly, while the company’s 10-year earnings growth rate of 15% per year wasn’t particularly strong, its P/E expanded from 37x in 2006 to 302x in 2016. But EPS and P/E can be misleading metrics for Netflix. The company has purposely destroyed earnings to invest in content and distribution as the “Streaming Wars” heat up. Over the past decade, Netflix annual revenue grew from $990 million to a projected $8.8 billion in 2016 — a 24.5% CAGR that is more in line with the leaders on our list.

GSV 300 IN 2016

In 2015, GSV launched the GSV 300 Index, which we believe is the best representation of what is truly going on with growth companies, their valuations, and performance.

It is an index of 300 of the World’s fastest growing companies, selected systematically based on key fundamentals, including revenue and earnings growth, geography, valuation metrics, and market capitalization. Because the companies are not handpicked, the GSV 300 doesn’t look at all like the typical indexes that people use to analyze growth companies and growth investors.

The GSV 300 Global Growth Index
The Definitive Barometer for the Global Growth Company Ecosystem

Source: GSV Asset Management
Comparing Key Metrics: GSV 300 vs. Peers
Tracking the GSV 300 P/E, Growth Rate, P/E/G, and P/S vs. Key Global Indices

Source: GSV Asset Management
Country Breakdown: GSV 300 vs. Peers

Source: GSV Asset Management
Performance in Context
Tracking the Performance the GSV 300 vs. Key Global Indices and Funds

Source: GSV Asset Management

The most relevant index for Institutional Investors to date has been the S&P 500, which is a good proxy for broad Market dynamics. But with a 5% long term growth rate, it hardly reflects conditions or performance for fast growing companies.

The fact that the S&P 500 is solely a market cap weighted index is problematic in that a $100 Billion Market Cap Company has 100x the impact on the Index as a $1 Billion Market Cap Company… not realistic in that a portfolio manager who viewed two portfolio companies as being equally attractive would have 100x more of that company in their portfolio.

The most well-known index, the Dow Jones Industrial Average (DJIA), is created with an even more bizarre rationale in that it is weighted by share price. So in other words, if one stock was $30 per share and another was $300 per share, the $300 stock would have 10x the influence on the DJIA as the $30 stock.

The GSV 300, by contrast, is constructed using a systematic three-step process, which is summarized below: Screening, Ranking + Scoring, and Index Weightage. For a full description of the GSV 300 construction methodology, please click HERE.

GSV 300 Methodology Summary

GSV 300 Snapshot

The average market capitalization of GSV 300 constituent companies is $5.7 billion, with a median of $1.4 billion. The 10 largest companies account for 27% of the index. By comparison, the top five companies in the 2,500-company NASDAQ Composite — Apple, Microsoft, Amazon, Facebook, and Alphabet (Google) — account for 29% of the index alone.

GSV 300 Snapshot
At 2016 Year End

Looking at the GSV 300 by geography, 32% of the index weightage comes from U.S. companies. China is the second-largest geography at 18%, followed by India at 10%, and South Korea at 9%. By contrast, 95% of the S&P 500 and 86% of NASDAQ are represented by U.S. companies.

GSV 300 Breakdown by Country
Countries of GSV 300 Constituent Companies as a Percentage of Index Weightage (through 2016)

Source: GSViQ
S&P 500 Breakdown by Country
Countries of S&P 500 Constituent Companies as a Percentage of Index Weightage (through 2016)

Source: GSViQ

NASDAQ Breakdown by Country
Countries of NASDAQ Constituent Companies as a Percentage of Index Weightage (through 2016)

Source: GSViQ

Performance & Valuation

There was no “Trump Bump” for the GSV 300, which fell 9% in Q4 and 15% for the year. U.S. and Chinese companies drove the action, down 16% and 26% respectively. Indian companies, by contrast, rose 3% in 2016. Segmented by GSV investment theme, “Sustainability” and “Cloud + Big Data” companies declined 20% apiece. “Marketplace” businesses gained a modest 5% and “Education Technology” enterprises were up 8%.

GSV 300 Performance by Country
2016 Performance of the GSV 300 by Country of Constituent Companies

Source: Yahoo Finance, GSViQ
GSV 300 Performance by GSV Investment Theme
2016 Performance of the GSV 300 by Industry of Constituent Companies

Source: Yahoo Finance, GSViQ

While we’re certainly rooting for stronger performance, our objective in launching the GSV 300 was to create a scorecard that reflects what is actually going on in the World of growth stocks.

The T. Rowe Price New Horizons Fund, for example, has pursued a strategy of investing in small, high-growth companies since 1961. While it is actively managed, Peter Lynch observed in Beating the Street that the fund is, “as close as you’ll get to a barometer of what is happening to emerging growth stocks.”

Since small companies are expected to grow at a faster rate than large companies, they usually sell at a higher P/E than larger companies. Logic might suggest, therefore, that the P/E of the New Horizons Fund would be higher than that of the S&P 500 at all times.

This isn’t always the case, and at times when it isn’t, the New Horizons Fund can be a smoke signal for an undervalued or overheated growth economy. Over the last 50 years, for example, the New Horizons P/E has risen to double that of the S&P 500 only four times.

GSV 300 Valuation Metrics
GSV 300 Valuation Metrics vs. Key Indices (12/31/16)

Source: Capital IQ, GSViQ

Currently, the GSV 300 has a P/E (forward) of 25.7x, or1.5x greater than the S&P 500. Our thesis is that at over 2x, it’s a warning signal for growth stocks, and at under 1.2x, it’s a buying opportunity. We’ll monitor this trend, as well as the relationships of other key valuation metrics, to determine patterns over time.

GSV 300 P/E VS. S&P 500
GSV 300 P/E as a Multiple of the S&P 500

Source: GSViQ, Capital IQ
GSV 300 P/E/G VS. S&P 500
GSV 300 P/E/G as a Multiple of the S&P 500

Source: GSViQ, Capital IQ
GSV 300 P/s VS. S&P 500
GSV 300 P/S as a Multiple of the S&P 500

Source: GSViQ, Capital IQ


There were a paltry 102 U.S. IPOs in 2016, but we started to see some bullish signs from the Market with Twilio’s successful offering on June 23rd. Despite recent volatility, it is trading at twice the $15 per share where it priced. It was followed by 63 IPOs, including notable listings from technology companies like Line, Talend, and Nutanix, which priced above range and popped over 27%, 42%, and 130% respectively.

2016 IPO Snapshot

Source: GSViQ

The recent trend points to a broader opportunity for the best names to break through an IPO backlog that has been building over the last fifteen years.

Snap (Snapchat), a powerful new force in digital media, has already filed for an IPO that could value the company at $20-$25 billion, according to the Financial Times. The streaming music leader Spotify has also signaled its intent to go public. A 2016 $1 billion convertible note with aggressive IPO convert terms has become a countdown clock of sorts and CEO Daniel Ek has stepped in for co-founder Martin Lorentzon as Chairman of the business — another sign of a likely listing. (Disclosure: GSV owns shares in Snap and Spotify)

New IPO Fundamentals

Source: GSV Asset Management
Disclosure: GSV owns shares in Lyft

In July, Vice Media CEO indicated that he was in discussions with major banks about taking his $4 billion company public. Dropbox, which announced in June that it has become free cashflow positive, has had similar discussions, according to Bloomberg. At the Wall Street Journal’s 2016 Global Technology Conference, Palantir CEO Alex Karp indicated that the company had prepared itself should it decide to go public in 2017, which would create liquidity opportunities for employees. (Disclosure: GSV owns shares in Dropbox and Palantir)

China’s Didi Chuxing, which was valued at $33 billion in a September 2016 funding, could be primed to IPO now that it has absorbed Uber China. WeWork, where CEO Adam Neumann remarked in July that, “we’re not afraid to go public,” could surpass $1 billion in revenue run rate next year. The list goes on.

Stocks kicked off the New Year with a bang, with technology stocks finally participating in the post-election Market party. For the week, NASDAQ advanced 2.6%, the S&P 500 was up 1.7%, and the Dow closed within a smidgen of 20,000.

World Indices

Source: Yahoo Finance, GSViQ

The Consumer Electronic Show (CES) is where over 100,000 people gather in Las Vegas to see what’s new and what’s next. This year, the buzz was about driverless cars, virtual reality, and drones.

Tech leaders such as Facebook, Alphabet (Google), and Amazon were all acting well, moving up 5.8%, 3.0%, and 4.1%, respectively. Chinese Internet stocks also came out strong, with the BATs (Baidu, Alibaba, and Tencent) all soaring.

What seemed like disappointing news for Tesla — that quarterly production would fall a couple thousand short of its 25,000, target — was actually greeted with a 7% rise in the company’s shares. Maybe it’s that the Gigafactory had some positive news. In any event, investors believe that the next stop for Tesla is delivering 500,000 cars in 2018.

We remain BULLISH on the outlook for equities and premier growth companies in particular. While rising interest rates have historically put the brakes on growth stocks, the modest valuation for many of the leaders, coupled with extraordinarily low yields, makes near term competition from bonds unlikely.


by Luben Pampoulov


As we enter the age of autonomous driving, a whole new ecosystem is getting created. From cars, to interior design, to outside sensors, to cutting edge software, to better streets…and even better cities. Needless to say, we expect 2017 to be a big year in that space!

And its started with a Boom! Last week at CES, one of the biggest stories was HERE — the real-time, high-definition mapping provider, which could become the backbone of the autonomous driving industry.

First, Tencent, GIC, and Alibaba’s NavInfo announced they invested and took a collective 10% stake in the company, along with existing investors Audi, BMW, and Daimler. A few days later, Intel announced its investment in HERE, resulting in a 15% stake in the Chicago based company. “A real-time, self-healing and high-definition representation of the physical world is critical for autonomous driving, and achieving this will require significantly more powerful and capable in-vehicle compute platforms,” added HERE CEO Edzard Overbeek.

Source: HERE

Then at CES in Las Vegas last week, HERE announced a partnership with the other chip leader, Nvidia, to develop the HERE HD Live Map into one of the leading real-time mapping solutions for the autonomous car space.

On stage at CES, Nvidia’s founder and CEO Jen-Hsun Huang said, “HERE’s adoption of Nvidia’s deep learning technology for the cloud-to-car mapping system will accelerate automakers’ ability to deploy self-driving vehicles.”

HERE had recently redesigned its consumer mobile app, called HERE WeGo, which tracks real-time data from a broad range of transportation sources, including city traffic, train schedules, rental car availability, on-demand ride sharing, bike sharing services, etc.. HERE WeGo is similar to Google Maps, in that it allows users to get from A to B. But it does so by using actual, real-time information from the spot, making its mapping service much more efficient.

A few days ago, HERE also announced it is integrating data from ride sharing leader Lyft into its app, allowing its users to see and chose available Lyft rides when appropriate. (Disclosure: GSV owns shares in Lyft).

What differentiates HERE from other mapping software is its accuracy; its HD mapping technology can pinpoint a car’s real-time location down to a few inches. In contrast, existing navigation technology can show location of vehicles only within a few feet of error. This significant advantage places HERE on the forefront among autonomous driving mapping providers.

What’s obviously exciting to car makers is that HERE’s mapping will be added to the entire network, and it will be processing the information derived from all the car sensors (think eyes and ears) instantaneously. In split seconds, that information will be communicated to the software that’s “driving” the car (think brain). And HERE is essentially the “nervous system” of the autonomous driving network, translating all the relevant information in as it happens.

HERE’s WeGo app currently works in many major cities across the globe, and it covers data from over 200 countries. HERE’s Director of Consumer Experiences, Patrick Weissert, explained that “there’s a fast-moving, emerging landscape of car-sharing, bike-sharing, scooter-sharing, car pooling, peer-to-peer rental and ride-hailing services, there are even providers now offering flight sharing!”

Not surprisingly, big tech leaders such as Amazon, Baidu, Microsoft and Samsung use HERE’s mapping software to power their mobile and online location-based services.

We are very bullish on the autonomous driving space, and believe that HERE is among the best positioned companies to thrive over the next years.

Pioneer Notes

by Li Jiang

The Only Way A US Tech Company Can Win in China

American tech startups and even more established companies competing to become a category leader in China is like European military powers trying to invade Russia during the winter.

It doesn’t work.

Google was slow to realize the rising competitive power of local grown Baidu. Facebook got censored and then largely displaced by Tencent’s WeChat. Uber ultimately bowing out by selling its China unit to Didi. Apple is besieged daily by new Chinese phone makers often with faster specs, and definitely at lower prices (more on Apple later).

Bless Mark Zuckerberg’s heart and his Mandarin skills but it’s going to be very difficult for Facebook to compete in China against Tencent.

The three factors that’s most difficult for U.S. (or really any non-Chinese) company to overcome is different consumer preferences, unfair government intervention, and the aggressiveness in which local competitors work.

Most company’s China strategy should and will end up in something other than growing organically. They can buy as Amazon did when it acquired Joyo for $75M in 2004. Joyo, now Amazon China, generated a reported $3B of revenue in 2016. Or invest as Apple did in Didi. Or create a joint-venture or franchise.

But the only way for a non-Chinese company to win organically in China is to build a BRAND. And not only any brand but one that is ASPIRATIONAL.

The Chinese consumer class is a new one, having made much of its purchasing power in the last two decades. In a mature market, people’s mentality is to buy the best product at the most affordable price. The Chinese psych is to buy products that reflect the aspirational lifestyle they want to have and will make the budget work.

Consumer models such as Louis Vuitton, Starbucks, and KFC have seen success in China. In fact KFC is the largest restaurant chain in China with over 5,000 stores.

Tech models like Apple and Tesla also tap into the aspirations of Chinese consumers. Apple, while trying to fend off every form of competition, is still well positioned and beloved by Chinese consumers for its premium brand. It’s early lead may slowly get eroded by every other handset maker, but its brand and image remain an alluring moat for the company.

Apple store in Chongqing, my mom’s hometown.

Airbnb, which started life as a simple couch-surfing service, has created a lifestyle brand. Now it’s opening a separate China unit. Airbnb will need to continue to build the vision of bringing a curated experience and unique taste to consumers in China. Offering the prestige of international travel experience is also a differentiator that’s hard to copy.

Coursera is growing in China. In fact, it’s the number 2 market for the company behind the U.S. The reason Coursera is so appealing to Chinese consumers is because it offers people the opportunity to take courses created by Ivy League institutions, something both highly valuable and worth striving for. (Disclosure: GSV owns stock in Coursera)

Both companies still have a lot of work to before they can celebrate. Airbnb is facing multiple stiff local competitors and Coursera has only reach 1 million (of the nearly 700 million) Chinese Internet users.

But an ASPIRATIONAL BRAND like Airbnb or Coursera can succeed where a more utility service like Uber failed.

Easier said then done. Jia you!

Market Update

Week ending January 8, 2017

World Indices

U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales