One billion hours of video is a lot.
In fact, it’s nearly impossible to conceive it.
But let’s try…
If all you did was watch online movies 24/7, it would take you roughly 41.7 million days to view 1 billion hours of video. That’s about 114,155 years.
I completed this thought exercise to help you understand the watershed online video recently reached.
It’s hard to believe, but YouTube just said that its users now watch 1 billion hours of video a day.
This is an important milestone for tech investors.
And today we’ll find out why.
There’s a moneymaking possibility here, too – beyond the obvious one (investing in YouTube’s parent company).
And we’ll uncover that today, too.
It’s one that will make you a lot of money over the years – and pay you a 3.5% yield as you hold it.
Take a look…
Changing “How We Live”
Let’s try to grok the “Singularity-level” impact YouTube and other online video services have had on the world around us.
Virtually any subject you might be interested in has hours and hours and hours of video related to that topic, much of it on YouTube, a unit of Alphabet Inc. (Nasdaq: GOOGL).
Let’s say you want to improve your workout. Head to YouTube – and you’ll find hundreds of exercise videos to wade through. The same thing goes for everything from cooking to film and music editing to learning how to paint or to become better at fly fishing.
In other words, online video is much more than just entertainment. It’s a distance-learning tool for nearly every subject under the sun.
No wonder YouTube has seen a 10-fold increase in the amount of online video its users consume since 2012. That breaks down to an annual growth rate approaching 200%.
And the stats about how much of this content gets uploaded to YouTube’s servers are equally dramatic. We’re talking about 400 hours of video every minute, which translates to 65 years’ worth of content each day.
Of course, YouTube isn’t the only online video player in town.
Viewers at Netflix Inc. (Nasdaq: NFLX) last year watched 116 million hours of video a day. And those at Facebook Inc. (Nasdaq: FB) racked up 110 million hours’ worth.
This perfectly demonstrates how technology already has transformed our world – and how, thanks to the market “Singularity” we uncovered a few month’s ago, technology’s fusion with the markets just went into overdrive
And all these hours of online video watched – nearly all of which have come over just the past decade – fits nicely into the “How We Live” Singularity Era “window” of opportunity. These are the pools of innovation that will lead to new intersections in the “Convergence Economy” we’ve been talking here.
Clearly, we’re talking big business here. MarketsandMarkets says the video-on-demand market will be worth $61.4 billion by 2019, compared with the $25 billion value at the end of 2014.
Bear in mind, that stated market value only covers the actual video market. I believe the actual value of this trend is much higher for a simple reason – all that video has to go through data centers to be processed.
That means we don’t have to only invest directly in Alphabet, Facebook, or Netflix to profit. Additionally, we can target firms without which transmitting all this video would not be possible.
Even better if the investment allows us to tap the growth of the cloud computing industry, which Gartner says is worth $200 billion.
As I promised, we’re going after you Singularity Plays – the tech stocks, funds, and other investments with the best chance of making 10x gains… or beyond.
This is one of them…
All That Bandwidth Has to Go Somewhere
Digital Realty Trust Inc. (NYSE: DLR) is a solid investment in the Singularity Era-fueled growth in data centers.
Whether it’s cloud computing, online video streaming, or so many other bandwidth-hogging applications, today’s data centers ensure that the internet backbone can link to almost any site.
And Digital Realty is often home to that offloaded traffic, which runs through its 145 data centers spread across more than 30 metro areas. More than 2,000 corporate clients now have direct links into those data centers, enabling content and files to cross massive distances in a split second.
First and foremost, this is play on the billions of us using social media. Digital Realty derives half its sales from social-media leaders like Facebook (and its 1.86 billion monthly active users) and LinkedIn Corp. (and its 467 million members).
Linking one firm’s servers directly to their business partners’ servers is big business. Digital Realty provides more than 70,000 such direct server links for clients across its many sites.
And chances are your financial transactions are securely routed through Digital Realty’s data centers. We’re talking about clients such as JP Morgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS), which collectively account for nearly 30% of sales.
Of course, many of those clients have an increasingly global footprint, which is why Digital Realty has recently invested nearly $900 million to build a strong presence in Europe and Asia as well. Nearly one-fourth of sales are now derived from those regions, and that figure should rise in coming years.
AT&T Corp. (NYSE: T) recently handed Digital Realty a powerful endorsement. It already had servers in 44 of the firm’s data centers, and recently inked a deal to act as a sales agent for AT&T clients that are seeking data center space.
This firm’s typical client signs a lease for an average of 12.8 years, highlighting just how sticky this business is. Those clients would typically have to spend $10 million $20 million if they wanted to move their gear to another data center – just one of the reasons why Digital Realty rarely loses a customer.
A peek at long-term data and video traffic trends reveals the kind of growth you should expect here. The Cisco Visual Marketing Index, an industry survey, predicts that global data center traffic will grow at a 33% yearly pace through 2019.
Location, Location, Location
As a real estate investment trust (REIT), location is Digital Realty’s real secret to success.
It has spent the past decade securing the choicest real estate in major U.S. metro areas, the kind of footprint that would be hard to replicate by any firm looking to crack the data-center market.
Building out that footprint didn’t come cheap. In the three years ended 2012, Digital Realty invested a combined $3 billion in capital spending. Since then, it has been able to enjoy the fruits of that investment, typically spending less than $100 million per year to make sure its data centers remain state-of-the-art.
And that’s bringing in a big payday, as these data centers are quite lucrative. For every $1 in revenue, Digital Realty earns about 57 cents in adjusted profits.
Now then, because this is a REIT, some investors may wonder about getting in at a time when the U.S. Federal Reserve is raising interest rates. That doesn’t concern me – for three reasons.
- Digital Realty is able to return almost all of its earnings to investors.
- Rising profits means that the firm’s dividend has grown at a 13% yearly clip since 2005.
- The current yield stands at a solid 3.5%. That’s nearly a full percentage point above the average REIT payout.
Shares of Digital Realty opened today at $103.60, giving it a market value of $16.35 billion. After doubling in size over the past five years, this firm grew large enough to garner an invite to join the S&P 500 in May 2016.
To be sure, as a REIT, a big part of the value proposition involves income and not just a rising stock price.
That solid dividend yield should keep growing in tandem with data center rent increases and rising global data traffic.
All that makes this a solid foundational holding.
– Michael A. Robinson
Source: Money Morning