Growth Description Revenue Pattern Example Ticker Declining negative growth GE Stable, Mature Growth low single digit growth often double digit growth CL CMCSA Emerging growth sharp upward trend of 20+% growth GOOGL Cyclical: Economic Cycle peaks and troughs MMM Cyclical: Product Cycle peaks and troughs AAPL Unusual Event sharp up or down tick VWGAY Acquisition/ Divestiture Large 1x increase or decrease in Revenues EBAY New Entrant/ Exit (Bankruptcy) Slow pressure on growth NFLX Explanation These companies may experience a deceleration or, worse, obsolescence. General Electric was once one of the most successful companies in the US. Revenues have declined by ~50% since 2008, made worse by business sales. It over expanded in the first decade of this century and has been spinning off weak businesses during the last decade. Gross margins have halved from prior peak levels in the 40%-50% range (which were in line with the average). Colgate is an example of a strong, well established brand with solid long-term growth in the low single digits. Pricing power and low cost manufacturing has led to Gross Margins of ~60%, above-average for the S&P 500. Comcast, a cable provider, has averaged 12% annual growth for the past ten years. It's average gross margin for the same ten year period was 70%, above-average. As you know from your own experience, most cable/Internet providers face little to no competition. Newer companies are often in the hypergrowth phase, benefitting from market expansion or share gains. Examples include TikTok, Spotify (SPOT) with revenue growth of 33% or Square (SQ) with 43% growth in 2019. Google has generated strong 20% growth for most of the last 20 years. Facing minimal search competition, Google search margins are estimated near 80%, diluted by new 'Bets' by Alphabet. Thus, average gross margins have averaged in the 60% range - above average. Companies that are driven by discretionary consumer purchasing behavior follow the economic cycle. To understand cyclicality, it is helpful to think about purchases that are definitely NOT cyclical: toilet paper, medicine. Even during a recession, consumers purchase these items. In contrast, cyclical products are those with weak demand in a recession like Ford's cars, Hyatt's hotel rooms, CAT's construction equipment ('Industrial' companies) and steel and copper ('Materials' companies). 3M (MMM) produces extremely diverse industrial products and it's sales are highly cyclical. 3M's gross margins are in the high-40% range, average for the S&P (ex financials). New technologies and product introductions can significantly impact growth rates in an industry. For example, Netflix's introduction of streaming video hurt sales at Blockbuster's video rental stores. Similarly, new more advanced versions of products can generate a significant uptick and demand and, as the product ages, demand dissipates and revenue growth comparisons get tougher. Apple benefitted from major product introductions in 2010 (iPhone 4S featuring Siri) and 2015. Apple is in competitive markets (cellphones and computer hardware) so its gross margins are in the 30% range. Examples include: (1) a product disruption such as the Tylenol drug tampering scare in 1982 or the Volkswagen (VWGAY) diesel emission scandal of 2015; (2) a political events such as the recent politically-driven protest against Goya products or the US government's tariffs on certain Chinese imports; or (3) an extraordinary event such as an earthquake or COVID. Many unusual events are temporary, i.e., Tylenol regained consumer trust and Katrina's damage was repaired. VWGAY grows in the single digits with high teens gross margins, below average. It is not in the S&P 500. Large step-wise increase (acquisition) or decrease (divestiture) of Revenues. Most major acquisitions are financed by an increase in shares outstanding (sometimes with debt), while smaller transactions may be financed with cash on hand. Unlike most Unusual Events which are temporary, the impact of M&A is felt longer term. Mid-2015, eBay distributed 100% of PayPal to it's shareholders, divesting the business. As a result GAAP revenues declined 45% but, in the Notes to it's 10K, it generated 6.5% growth excluding PayPal. As we will discuss in Valuing M&A (Workbook 12), it is essential to differentiate between 'organic growth' and 'acquisition-led' growth. A major change in the competitive environment can be a positive or negative factor to growth. For example, Amazon's entry into the streaming video space created new competition for Netflix. Apple's entrance into the cellphone market with the iPhone took market share from then industry heavyweight Nokia.