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#Market Strategy — 10.01.2018

Millennials: Adapting To The Largest Generation So Far

Guillaume DUCHESNE & Roger KELLER

2018 Investment Themes series: Megatrends theme #1
 

“Millennials” or “Generation Y” are the cohort of people born between 1980 and 2000, who are constantly connected via all kinds of numerous and varied devices. These young consumers, with new habits and needs, are revolutionising the way goods and services are consumed. They are forcing companies to innovate and are thus creating winners and losers in various sectors. We see opportunities in sectors such as Virtual Reality (VR) and Augmented Reality (AR) Database Management, including Cloud Computing, Big Data, and industries linked to new modes of consumption.

Virtual Reality & Augmented Reality

A “quiet revolution” has been taking place over the last few years in the video games sector, which has seen the business model shift away from selling software packages towards an approach based on monetising consumer engagement through micro-transactions. Now the appearance of Virtual Reality and Augmented Reality techniques, originally created for video games, is also expected to lead to the development of a wide range of new habits and applications in many sectors.  We also note the rise in popularity of both digital sport and video-on-demand platforms, which are a growing attraction and constitute a new channel for communication and advertising.  Last but not least, the VR/AR sector appears to show low price sensitivity, as the services on offer meet a growing demand.

On a wider perspective, we observe that a number of traditional sectors are now bringing new technology-based updates to their products, for instance connected TV sets and remote-control systems for all household appliances including heating, lighting, etc., which are all part of a new drive towards the “Internet of Things”.

We believe that the semi-conductor industry—which is essential for integrating new technologies into our everyday lives—and the software development business, with innovations such as facial recognition, Big Data analytics, etc., will continue to be the main engine driving industries over the next few years.

Database Management and Data Analytics (Cloud Computing) 

As companies undergo a digital transformation, they tend to collect more and more data in order to gain a better understanding of customer/user needs and so offer them a better customer/user experience. Managing all these data requires special knowhow and new firms have been arriving on the scene to provide such skills to this nascent market. We see two main areas for investment.  Firstly, companies need the means to gather this vital information; this may be achieved through the major online content providers. Secondly, analysing and exploiting these huge databases looks set to become a major business need over the next few years. Companies specialising in IT advisory and managers of large database systems are likely to see a growing demand for their services.

A generation with a different approach to consumption

“Millennials” are constantly connected via all kinds of increasing numerous and varied devices. More and more, these young consumers expect to obtain delivery of a growing number of products and services, based on a wide choice, at unbeatable prices and in the shortest possible time. So companies must now adapt to these needs. We therefore see opportunities for investors in the logistics (warehousing, delivery, etc.) and e-commerce sectors, as well as in a number of cutting-edge technologies designed to transport products from factory to customer.

Meanwhile, it is not only the method of consumption that is changing, but also the very nature of consumption. Millennials are avid for information and training to help them update their knowledge regularly. In order to meet this growing demand, more and more companies are working with innovative digital platforms to create new education systems in a wide range of fields. Such platforms are highly popular with people who do not have access to traditional training methods for reasons of time, cost or convenience.  Last but not least, this generation of people define themselves by their mobility and their enthusiasm for the sharing economy in which suppliers and consumers carry out transactions in a spirit of reciprocity. This trend is creating opportunities in fields such as household services, travel and accommodation.

Millennials have a different approach to consumption, which will in the next few years enable the development of new markets.  Companies will be forced to innovate and only the best performers will be able to profit from this trend.

MAIN RISKS

This investment theme is geared to generational trends and is long term in nature. Prices may undergo stronger-than-average corrections, given that a large proportion of securities covered by this theme are companies with already high valuations (as measured, for example, by the price-to-earnings ratio). Moreover, these businesses rely (to a large extent) on technological advances, which may either radically boost company profits, or conversely, jeopardise a company’s performance if those innovations are being introduced by competitors, which may in turn lead to a serious drop in stock-market value. It is therefore very important to monitor investments in these companies on a regular basis.

 


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