The law of compound growth dictates that many more companies will arrive at the arbitrary valuation of a trillion dollars. Last month, I described three actions that I think could do just that over the next decade. Three others who are benefiting from secular growth trends that could knock on the $ 1 trillion valuation door in 10 years are MasterCard (NYSE: MA), Walt disney (NYSE: DIS), and Adobe (NASDAQ: ADBE). Let’s take a closer look at what makes these three companies so valuable.
1. Mastercard: one of the biggest tolls in the world
With a market cap of over $ 330 billion, Mastercard would need to grow another 200% to become the trillion dollar club. But with digital payments and fintech continuing to gain prominence around the world, it’s not such a far-fetched notion.
Mastercard – with its rival Visa, which has a market capitalization of over $ 420 billion – has a virtual duopoly over the global payment processing network industry. Mastercard processes around a third of the digital payment volume excluding China, which is mostly confined to outside entities but which Mastercard obtained clearance to enter in early 2020 from the People’s Bank of China. The use of a credit or debit card or other electronic payment method is common in developed countries, but digital payments as a whole are still in growth mode and are expected to grow at a high percentage to a figure over the next decade.
So even though it generated over $ 16 billion in revenue in the past 12 months (including a 19% drop in revenue in the second quarter of 2020 at the height of the economic lockdown), there is a lot to love at Mastercard. The company collects service fees from its card-issuing partners based on transaction volume, as well as a toll-type “swap fee” each time an individual transaction is processed. As developing economies slowly but steadily move away from cash and e-commerce grows in importance, Mastercard’s payment volumes and number of transactions are sure to increase.
The best part about this business, however, is its lean operating model. Even in tough times, Mastercard’s operating margin was 53% in the first half of 2020. Coupled with the $ 11.5 billion in cash and short-term investments on balance at the end of June 2020, this digital payments giant has a tap of cash to tap into to continue to grow its network or acquire smaller fintech peers. This action is worth building a long-term core portfolio.
2. Disney: the world’s most popular entertainment
Consumers vote with dollars, and using this metric, Disney is the # 1 rated entertainment brand. Along with all of the classic Disney characters and stories, the company is deeply invested in sports with ESPN, has extensive television properties through ABC and Fox, and owns the Marvel Superhero Universe and Star wars franchise – all in a vertically integrated empire spanning theme parks, movies and entertainment, and merchandise.
Of course, the effect of the current pandemic on Disney is well documented. Its theme parks operate on a limited basis (except for the one in Hong Kong, which remains closed). Numerous sporting events for which he has the right to broadcast have been excluded. The cinemas are closed. That’s not a pretty picture, and Disney sales plunged 42% in the three months ended June 2020. However, even under extreme circumstances, the House of Mouse has remained profitable, generating a profit. ‘$ 1.1 billion operating on sales of $ 11.8 billion. in spring.
That’s not to say he’s in great shape, but entertainment segments that rely on in-person interaction may eventually recover. Until then, Mickey and his company are not resting on their laurels. The direct consumer segment which includes the Disney +, Hulu, ESPN + and Disney + Hotstar streaming properties (in India and soon also in Indonesia) already has over 100 million subscribers. A new international general entertainment service under the Star name using ABC and Fox TV and studio content is coming in 2021. And with the future of the theater industry in question, Mulan will be the biggest budget movie to stream direct to date, available to Disney + subscribers for $ 29.99.
Simply put, Disney remains a powerful entertainment empire that is helping lead the charge into a new digital age. It’s far from perfect right now, but the current state of affairs won’t last forever. And with a market capitalization of over $ 230 billion, it’s not hard to imagine that the world’s largest entertainment consortium is much bigger in a decade.
3. Adobe: fueling the world’s “digital transformation”
Much has changed since the dawn of the Internet in the 1990s. More than just a means of obtaining information, the Internet has created an interconnected digital world which is now the very foundation of business operations and the means of. obtaining and providing goods and services. This “digital transformation” was already underway before COVID-19, but businesses and individuals dragging their feet to make the necessary technology updates have had a fire burning in recent months.
This is where Adobe (and a growing rival salesforce.com) comes into play. Adobe started out as a developer of creative software, but has used its leadership in this area as leverage into a comprehensive business software suite. From day-to-day management of workflows (like signing documents electronically) to managing marketing (buying ads and monitoring data) to authoring tools (graphic design and digital content creation), Adobe covers activities. The options that await him in the years to come seem endless.
Highlighting how important this technologist has become, revenue grew 14% to $ 3.13 billion in the second quarter of fiscal 2020 (the three months ending in May) and management expects another increase by 11% in the third quarter. The world may be in the throes of a recession, but spending on Adobe products continues almost unabated. And with the need for software and cloud services only expected to increase over the next 10 years, Adobe is at the forefront of a massive industry worth hundreds of billions of dollars worldwide every year and growing steadily.
Currently valued at over $ 220 billion, this software company has the furthest reaching $ 1 trillion on this list. But still in expansion mode and totaling enviable operating margins of around 30%, there’s a lot to like about Adobe. It’s not unreasonable to think that it will be close to the 13-digit market cap range in a decade.