Investors looking for larger than life returns shy away from blue chip stocks that have stood the test of time, but have limited room to grow.  Instead, these investors opt for what’s hot in the minds of the investment community.
One of the current hot spots is disruptive technology stocks.  The term “disruptive technology” is relatively new, originating in 1997 in a Harvard Business School professor’s book, “The Innovators Dilemma.”
The author, Clayton M. Christensen, noted key differences in technology innovations.  Sustaining technology introduces enhancements to established technologies while Disruptive technology introduces new ways of doing things with no proven performance track record and as such, limited appeal.
Over time the term has morphed into a more succinct definition as products or processes that change the traditional ways of getting things done. This shift is unfortunate in that it steers would-be investors into focusing on the purportedly disruptive product or processes at the expensive of considering the potential size of the market about to be disrupted.  
To illustrate, consider the rise of an early disruptor, the Blackberry smartphone introduced by Canada’s Research in Motion.  The hardware and software platforms were revolutionary for their time, enabling “on the go” communication.  But to the most astute investors, the potential was not the product, but the market it served.  Literally every department in every organization on the planet benefited from what Blackberry introduced.  Contrast that with two recent ASX failures, once hailed as purveyors of disruptive technology – the defunct 1-Page Limited, and the failing Reffind Limited (RFN).   Both targeted niche functions in Human Resource operations in businesses.  Consider also that Human Resources is generally not at the top of the corporate wish list for capital expenditures.
The Blackberry story also brings into focus another factor to consider when researching disruptive technology stocks – competition.  While in the early stages disruptors may have a market to themselves, success breeds competition.  Blackberry’s undoing was management’s failure to recognise the threat posed by a new disruptor – the Apple iPhone.
There are three rock-solid ASX stocks that began as major disruptors in a time when few investors had even heard the term.  It may surprise some younger investors to know back in 1997 the Internet was in its infancy, with a sizable percentage of the global population unaware of its existence.  Amazon was still largely an online book-seller.
Here in Australia, managements at Seek Limited, (SEK), REA Group Limited (REA), and Carsales.com (CAR) saw the potential of digital technology via the Internet as a vast improvement over the traditional means of searching for jobs, cars, or properties at that time – print advertising.
The expanded information available digitally and the ease of searching and comparing offerings must have set the hearts of early investors pounding in anticipation of things to come.  While what these companies did was truly disruptive, would they have seen the same success has they been addressing some niche market?  Everyone at points in their lives looks for jobs, cars, and homes.
The three stalwarts have been around a long time, with Carsales.com being the newest ASX listing coming on in 2009 although the company began in 1997.  The following table shows the historical performance of the three.

REA Group (REA) was the first of the three to attack the classified advertising stranglehold of the print media, beginning in 1995.  As is the case with many of the world’s disruptive companies like Apple and Hewlett Packard, REA was born in a garage in the suburbs of Melbourne.  Benefiting from the Aussie property boom, the company’s share price has dramatically outstripped that of its fellow disruptors.  The Reuters website provides the company’s share price performance since it began trading on the ASX.

Despite concerns about the property market that seem omnipresent over the last several years, REA also has the best forward growth measures and current year over year price performance.

The company revolutionised property search and has continued to innovate throughout its storied history.  REA now operates leading commercial as well as residential proper sites here in Australia – realestate.com.au, realcommercial.com.au and flatmates.com.au – along with international sites throughout Europe, in China, in India, in the US and around Asia through its subsidiary with the Singapore based site iProperty Group.  iProperty Group extends the company’s reach into Malaysia, Indonesia, Thailand, the Philippines, and Hong Kong.
The company offers related services for markets adjacent to property ranging from solutions for property developers and digital advertisers to utility connections.  A blog site publishes industry guides and insights into property related issues.  In its latest move to maximise its competitive advantage, REA Group is partnering with National Australia Bank Ltd (NAB) to offer home loan products on its realestate.com.au website.
Although some investors may worry about competition from the recent spin off from Fairfax Media – Domain Holdings (DHG), as of FY 2017 average monthly visitors to REA’s top Australian site exceeded visitors to Domain’s site by 2.5 times.  Domain has no international presence.
In 1997 the founders of SEEK Limited (SEK) went to work and in 1998 the online job search platform was launched, with the company going public in 2005.  SEEK shares the common characteristic in all three of these disruptive companies of innovative new offerings to its client base over time.  SEEK now has international search sites and an operating division devoted to developing and marketing a variety of learning programs to enhance the skills of job searchers.
The company now proudly proclaims it has the largest market capitalisation of any job board in the world, reaching out to 4 billion people in Australia and New Zealand, China, Brazil, Mexico, and across Southeast Asia.  Seek sites include more than 700 thousand employers and 150 million job seekers. The company has been successful in its strategic decision to invest heavily in expanding its international presence.  Monthly visits to Seek International sites far exceed visits to ANZ sites, 420 million internationally and 35 million domestically.
Competition in this space now includes social media networking sites but Seek’s heavy investment in its learning division sets the company apart from the pack.  The company is now an 80% owner of the online education services site OES. Due to regulatory changes in the vocational education sector Seek exited that segment but has plans for a new company growing out of another of the company’s innovations – the Early Stage Ventures operation.  
The company actively invests in start-up companies focusing on ancillary services to the job market segment.  Notable investments in the field of human capital management – the processes needed for successful recruitment, management, development and overall optimization of a company’s human capital – include Ximble, Sidekicker and Workana.  Ximble offers a job scheduling app; Sidekicker provides a hiring platform for temporary workers; and Workana is the first freelancer website in Latin America.
Although less spectacular than that of REA Group, Seek’s share price performance since listing is close to 600%.

Carsales.com (CAR) followed the same evolutionary path as the other two early movers in their respective sectors. The founder, a self-described software guy, saw a future in digitising the print ads from car dealers.  His goal was to “build a better mousetrap” according to a Sydney Morning Herald article highlighting entrepreneurship. His original business model was simple.  Get the car dealers to “tell us the year, the make, the engine and the transmission, the colour and the kilometres, and we tell you about 200 other things about that car.’
Online advertising is still the company’s core business but in addition to cars there are now ads for motorcycles, boats, caravans, trucks, and machinery equipment.  With all those dealers relying on carsales.com it was a natural next step to begin offering additional things dealers could use.  The company now has a Data and Research Services segment and a Finance and Related Services Segment. 
Data and Research offers a diverse menu of products that help dealers become more successful, including software, data analysis, research, valuation services, and website development and hosting.  Carsales.com can even handle the photography needs of dealerships. The Finance and Related Services segment assists with vehicle and equipment financing. 
The company’s revolutionary innovations extended beyond the technological prowess of its website.  Pricing for classified ads in both the print media and online had always been based on how long the ad ran.  You paid whether the vehicle sold or not.  Carsales changed the pricing model to a “pay when you sell” approach, and a pay upon inquiry approach for dealers.Carsales has the largest online business of its kind in Australia, with operations across the Asia Pacific region and has interests in leading online automotive classified businesses in Brazil, South Korea, Malaysia, Indonesia, Thailand and Mexico.  In November of 2017 the company acquired full control of its joint venture site in South Korea.
The share price is up more than 250% since the company began trading on the ASX.

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