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The Digital Economy Index 2020

July 16, 2020
By Hans Tung, Robin Li and Lucas Mussi
The “Digital Economy” was born over 25 years ago. Coined by technologist and author Don Tapscott, the term “digital economy” originated in his book, "The Digital Economy: Promise and Peril in the Age of Networked Intelligence." In those early Netscape years, the claim that personal technology would one day be ubiquitous enough to constitute an entire economy was nothing short of visionary. But now, and especially during COVID-19, most companies have embraced e-commerce, mobile technology, and/or social media, making it all the more relevant to consider the impact and opportunities of the aptly-named “digital economy” we find ourselves in today.

GGV Capital is launching the Digital Economy Index at its annual Evolving|E Summit. The Index looks at the share price performance of e-commerce-related public companies across a range of time periods over the last decade. The goal is to highlight how well consumer-facing companies in this large digital economy bucket and its subsectors have performed as a potential indication for future returns. As a result, the Index both reveals and confirms patterns that are shaping economic performance in consumer industries ranging from e-commerce to fintech, edtech, foodtech, wellness, healthtech, and more. Each of these industries are categorized into smaller indices within the larger Index, making it easier for investors to track according to their categorical interest.

In the Index’s 10-year time period, several major catalysts have given rise to the Digital Economy. First is the widespread adoption of smartphones. Although Apple launched the iPhone in 2007, it was released in all major markets in 2009 and by 2010, 20% of the U.S. had smartphones. Today, 80% of the U.S. market has a smartphone with considerable additional adoption in both mature and developing markets. This has driven the development of transformative technologies such as mobile payments like WeChat Pay, which in 2019 had 800 million active users, and Apple Pay with 400 million global users.

Still, one of the greatest contributors to the consumer digital economy emerged in the last few months: COVID-19. In Q1 and Q2 alone, B2C companies have scaled digital innovation at record-breaking rates. Amazon, Walmart, and CVS have embarked on robust hiring sprees, Square and PayPal are at all-time highs in the stock market, and significant acquisitions have been made in online food delivery with JustEat acquiring GrubHub and Uber acquiring Postmates. Online retail grew by 146% since this time last year, according to an Emarsys analysis conducted in collaboration with GoodData, making almost every day since March a “Black Friday” shopping day.

As a result, companies that have embraced the digital economy have outperformed compared to the rest of the market, according to the Index. In our Digital Economy Index, the companies that have been trading for at least for 10 years had an average 10-Year IRR (Internal Rate of Return) of 33%, representing a 16% gain over the average Nasdaq Composite Index over the same period, and the gap has only expanded over the last few years (Note market cap. weighted return was used for comparison purposes since the Nasdaq Composite Index is also market cap. weighted).

Though the Index focuses on consumer-oriented companies, we deliberately excluded classifieds (often known as C2C, like eBay or Craigslist), as they are not transaction-focused offerings and are largely losing ground to e-commerce companies with more robust, consumer-optimized operations. We also excluded travel companies, whose underperformance before COVID was exacerbated in recent months, as well as P2P lending companies that operate more like banks than consumer-first fintech companies with unique innovations.

Read on for the first article in our series on the Index’s key takeaways. The first article focuses on the uptake of e-commerce from the world’s largest Digital Economy companies, and postulates how consumers in developing regions—which GGV defines as the “next billion”—will embrace the rise of online and mobile retail.

At GGV Capital, we’re excited to contribute to the conversation with the Digital Economy Index and use our platform to learn from others, too.


The Index uses an intuitive rating system to indicate the best investment predictions; a company is considered “Gold” status if it achieved an IRR of over 25% over the longest analyzed trading period. For example, Adobe has been trading for the last 10 years with a 32% 10-year IRR, classifying the software company as “Gold.” Silver and Bronze status are classified in a similar way, but with lower metrics. “Silver” means the company achieved an IRR of over 20% over the longest analyzed trading period; “Bronze" if it achieved an IRR of over 15%. Some companies are given the “Rising Star” status to highlight potential if they’ve been trading for less than two years but achieved a return of at least 30% in that time. This status applies to a company like Peloton, which only went public last September, but has seen a whopping 117% return.

We calculated IRRs using two methodologies, equal-weighted and market cap. weighted. In the equal-weighted methodology, $100 is theoretically invested into each company at the beginning of each time period analyzed, and the output, adjusted by the number of holding periods (years) are the annualized IRR for the index. For example, the Index indicates a 71.5% one-year IRR for Spotify, meaning if you invested $100 in Spotify stock on July 13, 2019, you’d now have 100 x (1+71.5%) ^ 1 = $171.50.

In the market cap. weighted methodology, IRRs are calculated using the same traditional formula, but the index is weighted by the size of each company in it. Under this methodology, a portfolio composed of two fictional companies, Company A ($30Bn market cap. growing at 10% for 1 year) and Company B ($1Bn market cap. Company growing at 100% over the same period) would have a combined market cap. increase of  about 13%, since the 10% increase in Company A would dilute the 100% return of Company B. In the equal-weighted methodology, however, the return would be 55%.
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