IoT sector outperforming stock market amid global slowdown, according to analyst group research
31 May 2019
As global markets have slowed, the IoT sector has outperformed the stock market – but only just, with a 0.01% loss nothing to write home about.
Systemic problems in showcasing the value of the IoT (Internet of Things) has led to many of the sector's most important companies struggling to persuade both prospective customers and the investment community in order to convert their proposition into financial success. Combine this with wider macroeconomic problems, fuelled by geopolitics, and the stock-market view of the IoT sector has not been good over the past year.
Rethink Research is an analyst group, thought leader & expert in wireless, 5G, video and the IoT, providing consultancy, analysis & research services across these sectors. Riot (Rethink Internet of Things) is its collection of weekly research articles, focusing on IoT, AI, cloud technologies and digital transformation, particularly in automotive and utilities.
The Riot 50 is its tracker of the top 50 IoT stocks, designed to monitor both reported results and stock market perception of 50 of the most important companies in the IoT sector, intended to provide a view of how the wider IoT sector is performing amid the stick market as a whole. Since this is still such a nascent sector, the number of startups in play can make getting such a view difficult, and so the Riot 50 is intended to try and illuminate this process.
According to Rethink, looking back on the previous 12 months in the IoT sector has proven to be quite illuminating, although they point out that others might describe it as depressing – we seem to be right back where we started. In terms of raw dollars (the numbers, rather than trying to convert all the different currencies and accounting for exchange-rate fluctuations), the top 50 IoT stocks (the Riot 50) are now worth 99.99% of what they were when Rethink first began logging (down 0.01%), in May 2018. The four indexes that Rethink tracked for comparison (the FTSE 250, the Dow Jones Industrial Average, the S&P 500 and the Nikkei 225) are now worth 97.55% (down 2.45%) of what they collectively were 12 months ago.
The Riot 50 started at 6,314.13, and has finished at 6,313.67 (2019-May-13). One week earlier, it would actually have finished up 3.52%, which is perhaps a better headline – however, based on Rethink's strict 52-week analysis, it barely grew. Though in terms of total market capitalisation, in raw dollars, the Riot 50 grew 6.4% through the period, even though the raw dollar share price dipped 0.01%.
Rethink often describe the IoT not as a market, but rather a trend that affects all markets. According to Rethink, the IoT is evolutionary, not revolutionary, and is something that will, in time, enter every system, process and product. To this end, it is something that, when viewed at macro-scale, moves at a glacial pace, like a lava flow slowly absorbing everything in its path.
Internet connectivity will come to everything in time, whether it is a direct connection on a high-value thing (where it is worth connecting it as part of the business model), or whether it is an indirect connection (like a printed label or barcode that creates a digital representation of this thing in a cloud application, or a sensor in proximity that allows this thing to be considered as part of an IoT application).
But the glacial pace of inevitable change apparently translates into the stock market performance of the Riot 50 – that is, things have barely changed over the past 12 months. On paper, the Riot 50 has outgrown some of the most prominent stock indexes, but in reality, it has simply managed to shrink by less than them. The whole stock market has been rocked by the ongoing China-US tariff disputes, which some believe are tit-for-tat, while others believe could trigger a global recession. In that sort of climate, stock markets don’t prosper.
For the startups looking for new investments, Rethink's M&A database illustrates that IoT-related multiples are much lower than historic examples of technology acquisitions. They see some as low as 2-3x revenue, and while mega-deals make it look like that market is still healthy, Rethink believes this is the beginning of a very difficult few years for startups which have not yet found their niche.
Investors are still wary of hardware, preferring software, and there have been plenty of burnt fingers inside larger companies that tried to scale a promising proof of concept into a commercial trial. On the one hand, we live in an age where any garage hobbyist can create a device that interfaces with bleeding-edge cloud platforms, but simultaneously, getting this new device adopted within an enterprise still faces innumerable hurdles – something Rethink tends to term ‘corporate inertia’.
When Rethink first envisioned the Riot 50 project, it thought it would clearly demonstrate that these companies, who are ahead of the pack when it comes to adopting or selling IoT products and services, were outperforming the market because of the IoT.
Instead, it can be inferred that these companies are collectively ahead, but only because the rest of market has regressed in the past year. Now, that might be a clear sign of success for some, but Rethink believe it is disappointing from the IoT Evangelist point of view.
Perhaps the next year might demonstrate the validity of Rethink's thesis, that companies who embrace the IoT are going to move ahead of the wider market that has not yet done so, but these past 12 months have emphatically shown that this is not the case.
The full report includes a document and accompanying spreadsheet, which is the main resource. Included chapters provide commentary on the data in their namesake tabs within the spreadsheet. The data is collected via a Google Finance API. For more information about the report, please download the full Executive Summary.
Companies mentioned in the report: ABB, Amazon (AWS), Ambarella, Aptiv (Delphi), Autoliv, BlackBerry, Bosh, Cisco, CEVA, Continental, Deutsche Telekom, Dow Jones Industrial Average, Enel, Erickson, FTSE 250, General Electric, Google (Alphabet Class A), Honeywell, HPE, IBM, Intel, Iteris, Itron, Landis+Gyr, Media Tek, Microchip, Microsoft, Nikkei 225, Nokia, Nuance, Nvidia, Oracle, Orange, PTC, Qualcomm, SAP, Schneider Electrics, Sequans, Siemens, Sierra Wireless, Silicon Labs, Skyworks, S&P 500, STMicroelectronics, Sunsea Telecommunications, Telefonica, Telit, Tesla, Texas Instruments, Tom Tom, u-blox, Verizon, Xylem, ZF Friedrichshafen.
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