It’s pretty rare for a company to upend its entire business model. So when it does happen—when a public company pivots in a new direction—investors tend to take notice (and often panic).
That’s exactly what happened a year ago when Zillow (NASDAQ: Z) announced they would begin buying and selling homes through a new business segment called Instant Offers. Rather than simply being an aggregator of agent listing, Zillow was suddenly inserting themselves directly in the value chain.
Nine months later, new CEO Rich Barton announced that the new segment had generated $128 million in revenue — 28% of the company’s overall sales. Barton also doubled down on the move. “I love it when a plan comes together,” Barton said. “Well, our daring plan to transform the real estate transaction for the super-empowered smartphone-wielding ‘Uber-ized’ consumer is, in fact, coming together, or at least it’s beginning to come together.”
There’s not many CVs out in the world as impressive as Rich Barton’s. While working at Microsoft (NASDAQ: MSFT)in 1994, Barton pitched the concept of an online travel portal to Bill Gates and Steve Ballmer. The idea was given the green light and Expedia was born. Barton led Expedia to IPO in 1999 and served in the top job until 2003. Following his departure from Expedia, Barton founded Zillow and served as CEO for 6 years before taking on the role of Executive Chairman. He also founded Glassdoor, which allows employees to rate their managers (information we always find interesting).
So when Barton talks about “super-empowered smartphone-wielding ‘Uber-ized’ consumers”, he knows what he’s talking about — the convenience economy. Nowadays, consumers demand a frictionless, convenient experience, with instant feedback. They want one-day shipping, free returns, and the GPS location of their Grubhub driver. But which companies are making all of this possible?
As the world continues to migrate countless ‘jobs-to-be-done’ onto smart-phones, it’s almost certain that you’ve used Twilio’s (NYSE: TWLO) technology. When you first validated your number on WhatsApp or Twitter, received a call from your Uber driver — or even made in-app contact with romance in mind — Twilio had your back.
Simply put, Twilio allows businesses to embed voice, messaging, and video into their own apps. This empowers 155,000 companies to tell their customers that their flight is boarding, their table is ready, their taxi is waiting, or anything else that requires instant contact
Revenue has been growing at 67% compounded annual growth rate since 2013, with active customers almost tripling in the last two years. This year Twilio anticipates revenue to cross the $1 billion mark, thanks in some part to its acquisition of SendGrid.
Communication systems are so rarely core to what a business does (not to be confused with communication, which is absolutely essential) that virtually every software business out there is a potential customer. Twilio makes their resilient solutions easy, affordable, and available to every type of customer. This is why their user base and revenues are destined for steady growth in a world of hyper-communication.
Since 2014, Zendesk’s (NYSE: ZEN) revenue has grown 48% on average every year. Their flagship product, Zendesk Support, now has over 73,000 accounts and allows companies to manage customers from multiple channels (Facebook, Twitter, Google) all in one portal. Meanwhile, by launching a series of complementary products like Zendesk Chat and Zendesk Talk, the company has managed to increase gross margins from 64% to 70%.
Zendesk’s commitment to shipping the best products has seen them attract major clients like Airbnb, Uber, and Veeva Systems. Anyone who has ever interacted with these businesses know how much importance they place on customer service, so the fact that they chose Zendesk speaks volumes.
Zendesk is still not profitable, as they continue to pump big money into Sales and Marketing and R&D. But every quarter they are becoming more efficient with their S&M spend, generating $2.08 in revenue for every dollar spent, up from $1.63 back in 2014. The company has a visionary founding CEO, who still owns 3.3% of the company, and has instilled a great company culture, with happy employees who believe in his mission.
3. Stitch Fix
Amazon is the obvious choice here, but for those comfortable with volatility, look to Stitch Fix (NASDAQ: SFIX) for a business that is ‘Uber-izing’ fashion retail.
This subscription service ships you five items of clothing at a time based on your preferences such as style, fit, and budget — you just pay for what you want and send the rest back. Today, the business has over 3 million paying members in the US who have been matched with 3,900 stylists.
But this is not a business based purely on the hope that a stylist will select clothes to a client’s taste. It is one powered by predictive algorithms that power-charge the stylists’ probability of success. And the more customers use the service, the better the predictions become.
The convenience of online shopping is beyond repute, leading to tough times for malls and brick-and-mortar retailers. Now, you don’t even have to spend time in front of the screen hunting down items. Stitch Fix shares are up over 100% since going public in November 2017 but we still think there’s plenty of room to run for this young and dynamic company.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Stitch Fix, Twilio, Zendesk, and Zillow. Read our full disclosure policy here.
Head Analyst at MyWallSt
Rory’s first stock was The Walt Disney Company. He wanted his first stock to be one he could pass on to his children.