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LendingClub thrusted the peer-to-peer business model back to the forefront last week. But is it really the best way to bet on this rising trend?
The peer-to-peer (or just P2P) economy is here to stay.
It’s as simple as it sounds. With the help of technology, individuals provide products and services to other individuals. P2P ultimately reduces the need to interact with business and allows individuals to share their own resources.
If P2P wasn’t on your radar before, there’s a good chance it is after last week. The P2P lending site, LendingClub (NYSE: LC), completed its IPO last week, and shares are up 70% since then.
LendingClub is disrupting an industry that had been resistant to change for a long time. The P2P lending site was propelled into the spotlight during the financial crisis – a time when banks just weren’t willing lending.
In reality, high unemployment and a struggling economy have been the driving factors behind the growth of the P2P economy.
There’s still a number of industries that are ripe for disruption, and several that will be impacted by the fallout of P2P.
Already, two of the biggest industries in the U.S are being upended.
The need to buy cars is declining with the rise of Uber, Lyft and Getaround. And the way we buy homes is quickly changing as Zillow (NASDAQ: Z) offers individuals the ability to connect with peers in an effort to sell their homes. HomeAway (NASDAQ: AWAY) provides a place for individuals to rent out their vacation homes.
One of the forgotten P2P players, and pioneers in the space, was eBay (NASDAQ: EBAY). Etsy is bringing P2P ecommerce back into focus by allowing individuals to sell handmade goods to other individuals via an online platform. And Kickstarter is changing the venture funding industry. It’s a crowdfunding platform that allows individuals to raise money from other individuals to fund a project.
But have things gotten out of control?
With its recent funding, Uber was valued at $40 billion. If it were a public company, it would be larger than roughly three quarters of the S&P 500.
Airbnb’s recent round of funding put its valuation up to $13 billion, which means it’s worth more than hotel chains like Choice Hotels (NYSE: CHH) and Wyndham Worldwide (NYSE: WYN), and quickly approaching Starwood Hotels (NYSE HOT).
Recall that Avis Budget Group (NASDAQ: CAR) paid a 50% premium for the car-sharing service Zipcar last year — a bet that has largely flopped. And as far as LendingClub goes, there are already other companies chomping at the bit to get a piece of the P2P lending market. These include Prosper and Zopa.
The one thing that all P2P companies have in common is technology.
Technology and the Internet, of all things, appear to be sure bets when it comes to the future of P2P.
Companies that can make P2P more efficient will be the best plays. That includes companies that can reduce friction and make the interaction seamless.
Going back to LendingClub, at the end of the day it is a rare technology platform. They connect lenders with borrowers via their site and take a percentage of the loan as a fee.
But, you don’t have to go out and try to invest in startups to take advantage of the P2P economy.
Two of the biggest tech companies in the world could be a couple of the most underrated players on the P2P economy: Google (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL).
While smartphones will undoubtedly continue to be enablers of the P2P economy, the future lies in connecting as many devices, and as many people, in as many ways as possible.
Google and Apple are connecting the dots. And they have the balance sheets and cash hoards to do it.
So far this year, Google bought Songza (music streaming), paid $555 million for Dropcam (home monitoring) and $3.2 billion for the smart thermostat company Nest Labs (home automation). All this comes after it spent $1 billion last year for P2P navigation app Waze.
Google already has a small presence in P2P payments with Google Wallet. Apple could enter the market after launching Apple Pay earlier this year.
The bottom line is that P2P is a rapidly growing industry. Now, what will be the next big P2P platform? What industry will P2P disrupt next? That’s a tough question to answer. Fortunately, you don’t need to answer it to succeed in P2P investing.
During the gold rush of the 1800s, the best investments turned out to be the companies selling picks and shovels and the companies investing in gold miners. Not all gold mines succeed, but they will all buy picks and shovels.
Apple and Google, with their unmatched technological prowess, will undoubtedly be the ultimate winners in the ever-growing peer-to-peer sharing economy.
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