At First Avenue, we focus extensively on the ability of a company to build, and invest in, a sustainable economic moat that drives value creation. However, disruptive business models are often the ‘curveball’ that can destroy existing value. We therefore pay close attention to these forces in our investment analysis. It is particularly fascinating to see how incumbents respond to these threats. The newspaper industry is a case in point. Many of the leading industry players had clear sight of the internet well before it destroyed advertising revenues in the industry. However, only a select few media companies globally embraced the wave of disruption as far back as 1995 to expand beyond traditional print. Such companies, including Naspers, are special in that they extend their runway of value creation for decades to come! Think about how Nokia started as a wood pulp mill in 1865, transitioned to a tire and rubber products company in 1898, telephone and power cables business in 1912, and then a telephone equipment manufacturer in 1967 before its demise in 2012.
Please click here to access the September, 2015 issue of The Burgundy which deals with this topic.