Morgan Stanley · NYSE:MS
Morgan Stanley — The Industry Standard's Internet Summit 2001
25 slides from Morgan Stanley's conference presentation, July 2001
Slide 1: The State of Capital Markets and An Update on Technology Trends
THESTANDARD INTELLIGENCE FOR THE INTERNET ECONOMY SUMMIT INTERNET The State of Capital Markets and An Update on Technology Trends Mary Meeker Presented at The Industry Standard’s Internet Summit 2001, Carlsbad, Ca. July 2001 OVERVIEW Where We Have Been. . . Where We Are. . . So, How Long Before Thin
Slide 2: Where We Have Been . . . What Just Happened
Where We Have Been . . . [email protected] 3 WHAT JUST HAPPENED… Unprecedented Innovation. . . Unprecedented Technology Progress… Significant Wealth Creation… Significant Wealth Destruction… [email protected] 4
Slide 3: Internet Big Bang: Once in a Lifetime
INTERNET “BIG BANG” . . . ONCE IN A LIFETIME 150MM PCs primed for THE BROWSER! Aug 8th th 1995 Netscape IPO Apple, IBM, Compaq & Microsoft laid the foundation. . . Killer Apps – #1 – email #2 – browser [email protected] 5 INTERNET-TYPE “BIG BANGS” RARELY OCCUR Name Ten Big Bang Catalyst
Slide 4: Internet-Type Big Bangs Rarely Occur
INTERNET-TYPE “BIG BANGS” RARELY OCCUR Name Ten Big Bang Catalyst Inflection Companies? Automobile 1886 - Benz 1913 - Ford GM, Ford, Toyota, and Daimler assembly line, MI Volkswagen, build first auto, DaimlerChrysler, PSA Germany Puegot Citroen, Nissan, Fiat-Iveco, Renault, Hyundai 27 years later 78
Slide 5: Tech Company Maxims
TECH COMPANY MAXIMS • 5% of tech IPOs create 90%+ of the tech wealth – bottom line, few companies win big... • On average, 4 “Ten Baggers” IPO’d per year since 1980 • 53% of IPOs above IPO price historically Only 24% of 1999/2000 IPOs above IPO price [email protected] 9 DIGITAL DARWINISM
Slide 6: Business Maxim; Investing Maxim - Hunt for Ten-Baggers
BUSINESS MAXIM • #1 is Awesome • #2 can be OK • #3 can be Brutal • #4 – Huh? Who? Fuhgetaboutit [email protected] 11 INVESTING MAXIM – HUNT FOR “TEN-BAGGERS” To make a spectacular showing, you only had to find one big winner out of eleven [in a selected portfolio]. The more right you are
Slide 7: Major Tech Cycle Maxims
MAJOR “TECH CYCLE” MAXIMS Technology 1960s 1970s 1980s 1990s Mainframe Minicomputer PC Internet Computing Timing 15 years from PC cycle (1980) to Internet cycle (1995) [email protected] 13 MAJOR “TECH CYCLE” MAXIMS (CONTINUED) (CONTINUED) Pattern of Company Creation Boom (1stst-2nd nd in
Slide 8: Major Tech Cycles Don't Occur Often
MAJOR “TECH CYCLES” DON’T OCCUR OFTEN It's important to remember that the whole notion of the entrepreneurial cycle is messiness and creative destruction. Looking ahead, we'll see a long period of new foundation-building, consolidation and convergence. I definitely saw excesses close up and personal
Slide 9: These Cycles Can Be Ugly for Stocks
THESE “CYCLES” CAN BE UGLY FOR STOCKS Oracle - Oct ‘90 - down 81% to $0.13 now at $19...up 14,346% Compaq - Dec ‘91 - down 71% to $1.40 now at $16...up 1,019% Dell - Jun ‘92 - down 45% to $0.24 now at $27...up 11,233% Cisco - Jul ‘94 - down 51% to $1.09 now at $17...up 1,473% America Online - Oct ‘9
Slide 10: Wealth Destruction Has Been Significant Across the Board
WEALTH DESTRUCTION HAS BEEN SIGNIFICANT, ACROSS THE BOARD… Internet Internet Pure-Plays Pure-Plays Mkt Cap 12/31/99 $1,142B 362 Mkt Cap 7/12/01 415B ~$730B 362 Internet Internet companies companies Wealth Destruction (727)B S&P S&P Non-Tech Non-Tech Companies Companies 26 26 companies… companies… Mk
Slide 11: Tech Has Become Large Part of the Economy
TECH HAS BECOME LARGE PART OF THE ECONOMY U.S.-Based IT % of Nominal Business Capital Equipment Spending CQ4:00 = 53% 60% Annual Growth Rate of IT Spending = 14% Trendline % = 49% 50% 40% (%) 30% Internet 20% PC 10% 0% 62 67 70 75 80 85 90 95 00 60 65 72 77 82 87 92 97 19 19 19 19 19 19 19 19 20 19
Slide 12: Only 6% Y/Y Tech Revenue Growth - CQ1:01
ONLY 6% Y/Y TECH REVENUE GROWTH - CQ1:01 30% 1200 Y/Y Revenue Growth Morgan Stanley Tech 35 Index (MSH) Morgan Stanley Tech-35 Index (MSH) 25% 1000 % Y/Y Revenue Growth 20% 800 Average = 15% 15% 600 10% 400 6% 5% 200 0% 0 95 97 96 98 99 00 01 1: 1: 1: 1: 1: 1: 1: CQ CQ CQ CQ CQ CQ CQ mary.meeker@mor
Slide 13: Cycles of Tech EPS Revisions 1980-2001
CYCLES OF TECH EPS REVISIONS - 1980-2001 4.0 3,000 3.5 2,500 # Raised / # Lowered 3.0 NASDAQ 2,000 2.5 2.0 1,500 1.5 1,000 1.0 500 0.5 0.0 11/80 5/82 4/84 5/ 86 6/88 3/ 91 12/93 1/95 6/ 97 10/99 Source: IBES, Morgan Stanley Research3 month moving average of the ratio of upward revisions to downward
Slide 14: So, How Long Before Things Improve? Capital Markets
So, How Long Before Things Improve? • Capital Markets • Business Climate [email protected] 27 Capital Markets [email protected] 28
Slide 15: Growth Expectations Were Out of Line
GROWTH EXPECTATIONS WERE OUT OF LINE (MM) 600 250% Internet User Y/Y Growth Rate July 24, 2001 500 Global Internet Users 200% 400 150% 300 100% 200 100 50% 0 0% 95 96 97 98 99 00 01 02 03 19 19 19 19 19 20 20 20 20 Source: Morgan Stanley Internet Research [email protected] 29 WHAT HAPPEN
Slide 16: Global Tech & Telecom Capital Raising; Tech IPO Volume
GLOBAL TECH & TELECOM CAPITAL RAISING. . . 90 $ Billions 80 Technology Financings 70 Telecom Financings 60 50 40 30 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 YTD Source: SDC; Updated as of 7/10/2001. Included IPOs, follow-ons, convertibles and high yield. mary.meeker@morgan
Slide 17: What's Working in the Stock Market?
WHAT’S WORKING IN THE STOCK MARKET? Change S&P Sector 1999 2000 2001 YTD* Mkt Cap Leaders Transportation (11%) 17% 6% Southwest, Union Pacific Basic Materials 24 (15) 5 DuPont, Alcoa Comm Services 17 (40) 2 Verizon, SBC Financials 2 24 (5) Citigroup, AIG Capital Goods 27 2 (6) GE, Tyco Energy 16 12
Slide 18: I.T. Spending Pattern Recognition
I.T. SPENDING PATTERN RECOGNITION... • In 2000, U.S. IT spending rose 23% Y/Y. Only 3 years since 1960 when annual IT spending growth exceeded or equaled 23%. • Since 1960, when IT spending growth has fallen below GDP growth, as we believe it will in 2001...it has taken, on average, one to two years
Slide 19: The Internet Is Still in the Early Innings
1 The Internet is still in the early innings of its evolution. Simply put, ‘connectivity’ and ‘convergence’ are powerful secular trends, and handfuls of companies should have outsized market shares owing, in part, to network effects. [email protected] 37 CONNECTIVITY / USES EXPANSION ARE
Slide 20: Global Internet User Growth Should Rise 20%+
2 Global Internet user growth should rise at an annual rate of 20%+ for the next three to five years or so. • 300MM+ Internet users today • 5% global penetration today vs. 15% for telephones [email protected] 39 3 Internet usage growth could continue to rise at a rate of 1.2 to 2.0 times
Slide 21: Internet User/Usage Ecosystem Growth Slowing; Broadband
INTERNET USER/USAGE ECOSYSTEM GROWTH IS STILL STRONG...BUT SLOWING . . . Q2:00 Q3:00 Q4:00 Q1:01 User Y/Y Growth - Mean 126% 124% 112% 57% Usage Y/Y Growth - Mean 164% 145% 107% 86% Mean Y/Y Usage/User Multiplier 1.30 1.17 0.96 1.50 Source: Morgan Stanley Internet Ecosystem Framework; 6/07/01 mary.m
Slide 22: Industry Rationalization Is Occurring Rapidly
4 Industry rationalization is occurring rapidly setting the stage for the emergence of clear sector winners. [email protected] 43 5 Opportunities for rising online customer monetization are likely in the offing. [email protected] 44
Slide 23: Early Stages of Wealth Creation
6 We are likely still in the early stages of wealth creation related to the evolution of the Internet, but the number of companies that are real winners will be small. [email protected] 45 7 But, it may take 6-18 months of sluggish conditions and relative pain to work through many of the
Slide 24: Closing Thoughts
CLOSING THOUGHTS... Ø Entrepreneurship is really hard… and it’s REALLY hard to be a great entrepreneur – why is there only one Michael Jordan and one Tiger Woods? Ø And the people…the team... leadership… are key… Ø Biggest risk we all face is not being willing to continue to take risks... mary.meeke
Slide 25: The State of Capital Markets and An Update on Technology Trends
THESTANDARD INTELLIGENCE FOR THE INTERNET ECONOMY SUMMIT INTERNET The State of Capital Markets and An Update on Technology Trends Mary Meeker Presented at The Industry Standard’s Internet Summit 2001, Carlsbad, Ca. July 2001
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