WisdomTree ‘PLAT’ ETF Targets Platform Business Models

WisdomTree debuted a new ETF on the New York Stock Exchange on Wednesday that is one of its first truly thematic ETFs focused on technology, the WisdomTree Modern Tech Platforms Fund.

PLAT offers investors access to companies that are generating revenue from platform business models – these are companies with non-linear business models focused on creating value by facilitating interactions between two or more groups through technology (think: Zillow, eBay or Etsy, for example).

It seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Modern Tech Platforms Index and has an expense ratio of 0.45%.

Jeremy Schwartz, WisdomTree EVP and Global Head of Research, said platform-based businesses are gaining market share at the expense of traditional, linear businesses and doing so with much better scale economics and long-term profitability figures.

“Platform businesses are transforming value chains and we believe the breadth of opportunity expands far beyond great technology companies like Google, Amazon, Microsoft, and Apple,” said Schwartz.

Schwartz told ETF Trends the “asset light nature” of these platforms makes these companies more profitable as their network effect grows.

“The costs of adding additional customers decreases and puts them in a winner takes all type of position,” he said. “The adoption of these platforms has accelerated where they are taking market share much quicker than ever before. For WisdomTree, as we think about how do you capture the growth of the global economy and the different dynamics, it is a unique new growth orientated investment strategy in higher growth companies.”

Alex Moazed, co-author of Modern Monopolies and Founder & CEO of Applico, said WisdomTree licensed its Applico Platform Insight Product in order to create the new ETF.

Moazed said there was big future growth potential for platform businesses as they don’t own the means of production, they own the means of connection.

“These businesses are creating value by enabling the exchange of value between a consumer and a producer,” Moazed said. “Think about Uber connecting you to a driver, Google connecting you to a website or a video made by some third-party provider, or Amazon connecting you to a product from a third-party seller. All these businesses have network effects – and because they have two separate user groups on either side – when they scale these network effects it gives them a winner takes all dynamic, which means there are only one or two winners in any given space.”

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Moazed said they identified about 70 platform stocks that have platform revenue that fall into its portfolio criteria.

“For many years, people have known that tech isn’t just a sector,” he said. “Tech is now embedded into every industry. What we realized when we said ‘Okay, what are these 70 platform stocks and where do they come from,’ we realized these 70 platform stocks are the best tech stocks in any given vertical. These are the most defensible tech stocks – the tech stocks with the most growth ahead of them – that’s because they have these network effects and winner takes all dynamic.”

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WisdomTree believes there is a compelling, long-term market opportunity created by the evolution of platform business models, or “modern technology platforms.”

WisdomTree defines a modern technology platform as a company with a non-linear, multi-sided business model focused on creating value by facilitating interactions between two or more interdependent groups through technology.

By doing so, platform businesses can benefit from:

Scale advantages, Capital efficiency, Network effects, where the marginal cost of adding an additional user approaches zero as a platform grows, and Higher profitability margins.

The WisdomTree Modern Tech Platforms Index seeks to provide access to mid- and large-cap companies listed on a U.S. or European stock exchange that are generating substantial revenue from a modern platform business with a market-cap minimum of $2 billion.

In order to be considered a platform business, the company must possess the following characteristics:

Customer Relationship: The company has a direct relationship with a user group who consumes value. Producer Relationship: The company has a direct relationship with an external user group who supplies the value to be consumed by another user group. Platform Revenue: The company derives revenue from a platform business directly (as a percentage of the monetary value of each transaction it facilitates) or indirectly (by providing products or services related to the facilitation of value exchanges on the platform). Eligible platform types include services, product, payment, investment, social networking, gaming, communication, content and development. Platform Revenue Percentage: The company must meet a minimum revenue threshold from platform business units. Value Created by Producer: Value is supplied by a third-party and is not directly controlled by the company, and that supply does not sit on the company’s balance sheet. Network Ownership and Effect: The company owns the network by which the consumers and producers directly connect. The more consumers that use the platform, the more value each producer will get from the platform, and vice versa.

The Index is equally-weighted and rebalanced annually.

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