The digital economy is here to stay. The biggest global revolution since the industrial revolution of the 1800s is changing every aspect of our lives. Investors face several challenges such as lower inflation, traditional companies facing margin pressure, and the growth of a whole new industry – digital infrastructure
Digital infrastructure – The steel industry of the 21st century
During the industrial revolution, entire industries were lost and massive new industries were born. As a result, investing was challenging due to the rate of births and deaths of new companies, and the pace of technological change. But there was one product that was constantly in demand – steel. Factories, equipment and logistics such as rail and vehicles all demanded steel.
Data is the new steel. The total amount of data created and copied each year is currently around 18 zettabytes (ZB) and is doubling every two years (a ZB is 1,000,000,000,000 gigabyte, or around 157 million years of high definition movies). All of this data – regardless of its source – needs to be transmitted, stored and protected, creating a massive new industry known as data infrastructure.
Rackspace and NEXTDC are just two of the thousands of companies in this sector, but they are good examples of the beneficiaries of the digital economic revolution.
Demand for data storage doubling every two years
As the digital revolution progresses, we still have little idea which technologies, industries or companies will ultimately come out on top. Even the winners today might not be winners for long – Uber is currently worth $68bn, but can it make the transition to autonomous cars over the next decade, or will someone else disrupt the disrupter?
There is very little doubt that in ten years’ time there will be enormous fleets of autonomous vehicles operating just like taxis and Ubers today – but without drivers – making the cost per ride and availability so low that no one but the upper classes will bother owning their own car. But will that be Uber, or Lyft – Uber’s largest competitor now partly owned by GM – or perhaps Google?
Something similar could happen with AirBNB, -whether it survives is still a big risk. But, the digital infrastructure space is different. There is no question the amount of data created, transmitted and stored will be exponentially higher.
Google, Amazon, Facebook, LinkedIn, Netflix, Tesla, GE and IBM are all obvious owners of massive amounts of data. But the Internet of Things* revolution about to take off will make nearly every company in the world critically reliant on the safe transmission and storage of data.
The pace of change is what makes investing today so challenging – we can’t know where the combination of technology, entrepreneurial creativity and consumer demand will take us. What we do know is that changes like autonomous cars are coming, and with them an enormous surge in data that is gathered, transmitted, analysed, stored, and protected. With every trip you take in an autonomous car to retail outlets, restaurants, clubs, work, school or other destinations for example, the car creates valuable data that has value to someone, selling something, somewhere.
Rackspace and NEXTDC are both in the data storage market – while highly competitive, there is rapidly growing demand. So many industries today are under threat by the digital revolution, but here are two companies for your portfolio on the other side of that threat.
NEXTDC designs, develops and operates data centres in Australia. NEXTDC is currently an ASX300 company and is the only independent data centre operator with locations in Sydney, Melbourne, Brisbane, Perth and Canberra. The company was founded in 2010 and listed on the ASX later that year. The company had a market capitalisation of approximately $1.21bn as of 9 May 2017.
|Issuer ||Maturity date ||Bond type ||Coupon ||Capital structure ||Domiciled/currency ||Yield to worst |
|NEXTDC Ltd ||9 June 2021 ||Fixed ||6.25% ||Senior unsecured ||AU/AUD ||5.89% |
Source: FIIG Securities
Accurate as at 13 June 2017 but subject to change; indicative only
Available to wholesale investors only
Rackspace Hosting Inc.
Rackspace is a leading global multi cloud solutions provider in the business information technology market. Rackspace was founded in 1998 and has grown its revenue every year since inception to over USD2bn. The company operates in more than 120 countries, with 11 data centres located on four continents.
Rackspace primarily markets its services to Fortune 2000 companies who do not possess resources and scale to cost effectively employ an in house IT department to meet their data service needs, or deploy infrastructure to host their applications.
|Issuer ||Maturity date ||Bond type ||Coupon ||Capital structure ||Domiciled/currency ||Yield to worst ||Factsheet link |
|Rackspace Hosting Inc ||15 November 2024 ||Fixed ||8.625% ||Senior unsecured ||US/USD ||6.51% ||Factsheet^ |
Source: FIIG Securities
Accurate as at 12 June 2017 but subject to change; indicative only
Available to wholesale investors only. Bond is US domiciled and requires a W-8BEN form
^Note: You will require a MyFIIG login to access this content.
*Internet of Things is a term for every day devices like cars, fridges, home security, pacemakers or swimming pool filters that are connected to the internet to improve their utility