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STRANGE: There’s a tension between short-term
and long-term. It’s this innovator’s dilemma.FORTUNE: The goodwill that low commissions
would build with a customer feels like a long-term
investment. This is going to hurt my bottom line
this year, but five years from now ...SHARPS: The market’s letting companies get
away with that to some extent. Look at what
happened with Disney when they went public
with their streaming service investment. The
earnings estimates over the course of the next
several years went down, but the stock broke
upwards. The market said, okay, they’re taking
a much longer time horizon, and they’re try-
ing to capitalize on it now.BROWN: We saw the same thing with Walmart.
They announced the acquisition of Jet. It was
such a ludicrous multiple. When that news
came out, everyone said Walmart was crazy.
The stock exploded higher and has not looked
back. I don’t think they’re making any money
on that. It’s not the point. The point is they are
demonstrating to the Street and their investors
that they want to be in the game this century.FUNK: Another company that had a race to zero
is Intuit. Zero dollars for filing your taxes. You
think that’s a race to the bottom. But it enabled
QuickBooks Live, the ability to connect in real
time with a live person to finish your taxes.BROWN: Savita tracks investment strategy
based on R&D ...SUBRAMANIAN: We do. And what we found is
the strongest driver of longer-term [perfor-
mance] is R&D. That suggests that long-term
growth is rewarded by investors and compa-
nies focused on not just how to navigate the
next recession but how to navigate the next
five to 10 years.STRANGE: Some incumbents are realizing that
they should pay up to get there faster. And
sometimes the public markets are reward-
ing them. Prudential Financial just boughtbusiness models actually getting stronger.
And there’s a lot more to tech than the
FAANGs. There’s the whole area of digital
transformation and the move to the cloud.
There are also industries that have underin-
vested in tech for decades.
Construction. Manufacturing. Infrastruc-
ture. So a company like Autodesk, with its
building information management system,
can help both in the design phase and the
management phase, when the total cost of
construction reveals itself. Or Aspen Technol-
ogy: It helps really old industries—process
industries, refineries, chemicals, some manu-
facturing—to optimize their unit operations.
STRANGE: I actually think the concept of a tech
sector is somewhat outdated. Airbnb, is it a
tech company? No, it’s a hospitality company.
BROWN: Sure, and Amazon is a grocery store.
STRANGE: And other sectors are upgrading their
tech. If we look at insurance, one in 10 compa-
nies in the Fortune 500 is an insurance com-
pany. Every single one of these was started
before World War II. And they’re asking you
40 questions on a piece of paper to insure your
house. That doesn’t make any sense.
BROWN: Do you think the incumbents will
digitize, or do you think they’ll be disrupted?
STRANGE: Both ways, both ways. Look at
finance. Robinhood, they offer free stock
trading, right? They’re up to 7 million users,
which is a small piece of the pie. But then just
recently Charles Schwab and TD Ameritrade
cut their commissions down to zero.
BROWN: Do investors prosper, though? There
was a massive market loss for publicly traded
brokers. Robinhood does not trade publicly. I
doubt very highly the stock would have been
up on the news that Charles Schwab was not
only cutting commissions to zero but also
getting into fractional share ownership, which
is something that Robinhood has done really,
really well.
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Aspen
Technology
(AZPN, $115)Autodesk
(ADSK, $153)Danaher
(DHR, $135)Disney
(DIS, $138)General
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(INTU, $257)MercadoLibre
(MELI, $494)PRICES AS OF 11/08/19