IBISWorld, a California-based research firm, recently reviewed 10 industries that it projected to be among the fastest growing in the next five years. Some of the industries include E-commerce and environmental consulting. Read more about this in the full article from The Street.
Bad news for some is almost always good news for others, especially in the business world.
Recently TheStreet, using data provided by Los Angeles-based industry research firm IBISWorld, looked at 10 industries that are "on life support" — sectors failing to adapt to the times and standing on the precipice of extinction.
Now IbisWorld has taken a look at the other side of the coin — 10 industries it believes will be among the fastest-growing over the next five years.
IBISWorld Senior Analyst Casey Thormahlen walked us through the firm’s projections and the reasoning behind its picks:
Correctional facilities
Privatized prisons are a big business that’s only getting bigger — a grand slammer, if you will.
The prison industry’s $34.4 billion in revenues last year is part of total revenue growth of 9.1% from 2000 through this year, IBISWorld says. Total revenue growth from this year through 2016 is forecast at 7.5%.
"America has the highest per capita incarceration rate In the world," Thormahlen says. "We are also seeing a lot of state governments moving closer to the privatization of their facilities. We are seeing a lot of benefit for private correctional facilities."
With a year-after-year double-digit increase in prison populations, crime will continue to pay for private jail keepers and companies such as The Geo Group (GEO) and Corrections Corporation of America (CXW).
Thormahlen says that as states struggle with their budgets, more may take their cue from places such as Arizona, which last year tried to enforce a (since-repealed) law requiring that all prisons be privatized. Florida is among other states working to hand off responsibility for running its jails.
VoIP
The growth in Voice over Internet Protocol providers in the U.S. correlates to the steady demise of traditional "landlines." Companies are now offering all sorts of hosted voip pbx services and packages.
Innovative companies such as Vonage (VG) and Skype have led the way for traditional phone companies including AT&T (T) to shift gears to capitalize on the evolving demands of consumers.
Cable companies including Comcast (CMCSK), Time Warner (TWC) and Verizon (VZ) are also working to capture market share.
"You are seeing more people opt for bundled systems, where they get their cable telephone and Internet all in one package," Thormahlen says.
With nearly $12.5 billion in revenues last year, VoIP providers saw revenue growth approaching 194% from 2000 to this year. IBISWorld predicts an additional 17.4% growth through 2016.
Video games
Investors often have a love-hate relationship with video games. While their popularity is tremendous, surpassing Hollywood movies in dollars earned, predicting which games will be hits and which game makers will be saddled with duds is an inexact science.
"I sympathize with investors’ perspectives on that," Thormahlen says. "It is a lot like investing in Hollywood. So much of the growth and the big titles end up being surprises."
He counts Activision Blizzard (ATVI) as "among the gems" leading the industry forward with "reliably steady hits."
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Other positives are the success of consoles (included by IBISWorld in the category) and such accessories as Microsoft’s (MSFT) Kinect, rumors of a new Wii, Nintendo’s new 3DS and Sony’s popular Playstation.
Electronic Arts (ERTS), Thormahlen says, is "technically the largest company in the industry" but has been "on the downward track for the last few years."
"They have had a of of flops," he says. "They also have a lot of games that are iterations of themselves and a lot of sports-heavy games, but those are declining in popularity as you see more social games, like music and dance games, catching on."
Overall, the push into cross-generational games is helping fuel growth.
"The appeal is really broadening," Thormahlen says. "It used to be kind of a solitary type of activity and pastime; now you get more social games, with older people and more females involved. All of a sudden your user base is double the size it used to be."
The video game market in the U.S. earned $38.6 billion last year and saw a 6.2% growth rate since 2000. IBISWorld projects total revenue growth of 8.3% through 2016.
Biotechnology
"Biotech can be an industry where it is hard to predict the hits and misses, but if you took a holistic approach there are a ton of good companies," Thormahlen says.
With $87 billion in revenues last year, and 11% growth since 2000, biotech gets an IBISWorld prediction of 9.6% growth though 2016.
Technological advances will help keep drugmakers innovative and profitable for years to come, Thormahlen says.
"Were not quite at the point where we are doing personalized medicine — that’s something we see happening in the longer term," he says. "But you are seeing more effective vaccinations and new pathways of development. There is a lot of work going on with modifying viruses to increase the effectiveness of the drugs."
E-commerce and online auctions
"Creative destruction in action" is how Thormahlen describes the demise of many traditional, bricks-and-mortar businesses and the rise of online shopping.
The industry, with more than $95 billion in revenues last year, has grown 12.2% since 2000 and is projected by IBISWorld to increase revenues by another 9.4% through 2016.
"It is a huge, fundamental shift," Thormahlen says, describing how consumers have become more comfortable with technology and relaxed from their fear of using a credit card online. Over the past decade, such companies as Amazon (AMZN) and eBay (EBAY) have hit their stride and upstarts such as Groupon (which is gearing up for an IPO), Etsy and a whole range of "deal a day" sites are taking the trend further. The growth of smartphone apps has added to the landscape.
"There is such a low startup cost you can do more interesting things than you could ever think of doing in a bricks-and-mortar store," Thormahlen says. "There are such new and innovative ways to sell goods."
Internet publishing and broadcasting
As print media fights for life, the online publishing world is evolving rapidly.
With more than $32.5 billion in revenues last year, and growth of 25% since 2000, online publishing is projected by IBISWorld to draw another 6.8% jump in revenue through 2016.
"This is really to the benefit of Google (GOOG) most of all, because they have the most efficient advertising platform with AdWords," Thormahlen says. "It is really kind of a new paradigm. It is much more convenient for advertisers and there is a lot of accountability with what you are spending. It makes it much easier for bloggers — and whether it is professional or amateur content doesn’t matter — to be monetized. It’s the most fundamental change we’ve had since the dotcom bubble."
That innovation will continue as companies such as Google and Facebook continue to invest in the companies and technologies that improve the business models behind online content.
"They will find ways to derive revenue in more — and more interesting — ways," Thormahlen says.
Insurance claims adjusters
Although hardly a sexy-sounding business, the market for insurance claims adjusters is growing and will continue to expand for years, according to IBISWorld.
Insurance claims adjusters and third-party administrators accounted for more than $57.5 billion in revenue last year. With a growth rate of 6.9% since 2000, the industry is projected to grow another 7.7% through 2016.
Thormahlen describes this growth as a "fundamental shift in the insurance sales industry" that has led to outsourcing the work of claims adjusters.
"It is seen as a distraction from the core competency of sales," he says. "It is very difficult for companies that don’t specialize in this to really get the pricing right. The underwriting models that they use are very sophisticated, and it is really not worth it for a company if it is a side activity."
According to IBISWorld, insurance policy volumes will rise, particularly within the business sectors, contributing to the need for claims adjustment services. Increases in outsourcing activity by pension funds and direct insurers will also continue to drive growth, and advisory and risk management services will also benefit as businesses, insurers and people use the services to mitigate risks and hedge liabilities.
Environmental consulting
The growth of environmental consulting is not a new trend, nor is it one that has spiked in awareness following such high-profile crises as the BP (BP) oil spill in the Gulf of Mexico.
"This is something that’s been around for the last 30 years," Thormahlen says.
IBISWorld credits steady growth to public and governmental demands for a cleaner environment that force companies, in turn, to comply with an increasingly complex regulatory environment and reduce their carbon footprint for cost savings and a good reputation.
"How many projects are held up by lawsuits, or by endangered species or things like that," Thormahlen says. "Whenever there is an issue [with a company or developer] they need to call an environmental consultant to mediate. That’s something that may not be to the benefit of the general business sector, but it is certainly helpful for environmental consultants, because [businesses] need somebody to cut through this morass. It is a lot like how there is a need for tax preparation services the more complicated the tax code gets."
With more than $18 billion in revenue last year, the industry has experienced 7.7% growth since 2000. IBISWorld projects an additional 9.4% growth through 2016.
Wind and solar power
As oil prices rise, consumers will understandably be drawn more and more to alternative energy sources.
The biggest catalyst for the growth in these industries, however, are state demands and government incentives, Thormahlen says.
Twenty-nine states have "renewable portfolio" demands on utility companies. In California, for example, there is a requirement that 30% of the state’s energy needs must be met from renewable resources over the next decade. Tax credits and subsidies are furthering the cause among businesses and homeowners.
Compared with the other high-growth industries on the IBISWorld list, the revenues for solar and wind power companies are still relatively modest: $69 million and 3.3 billion respectively. Wind power companies, however, enjoyed 16.9% growth since 2000; 2.7% for solar. By 2016, they are projected to grow by an additional 11.2% (wind) and 7.9% (solar).
Recycling facilities
IBISWorld estimates that recycling facilities earned nearly $3.4 billion in revenue last year and grew 16.9% since 2000. It projects another 11.2% growth by 2016.
"Environmental concerns, high commodity prices and increased regulation are making recycling increasingly attractive and viable," it says.
Thormahlen credits the "wild ride" of commodity prices for prompting companies such as Frito-Lay (owned by Pepsi (PEP)) to use biodegradable recyclable materials for their packaging.
Recycling facilities, he says, have become "increasingly efficient at sorting the goods to make it more cost-effective." The very minimal cost of these raw materials, compared with the high and fluctuating costs of the commodities that would otherwise be used, is "driving more and more growth."
This article was republished with permission from The Street.
