Back in late July in this space we speculated about the possibility of one of four tech giants becoming the first company to achieve a sustained valuation in excess of a trillion dollars.
Here’s what I wrote: “Possibly happening over the summer: the first trillion dollar company, as measured by market capitalization. There are four contenders, all in the tech sector. Valuations were those at press time. Apple ($945 billion), Alphabet, parent of Google ($877 billion), Amazon ($860 billion), and Microsoft ($818 billion).”
Fast forward to mid-December. Apple did indeed become the first company to cross that psychological barrier, maintaining a couple of weeks in excess of a trillion-dollar valuation, peaking at a share price of around $233. However on Nov. 1 an analyst released a report that cited slowing demand for certain iPhone production components. This triggered a pullback that was still continuing well into December.
In percentage terms, the pullback from $233 to a low of around $168 represents a drop of 24 per cent, or almost a quarter. The decline clearly placed Apple in correction territory, that label generally being applied when a share price drops more than 10 percentage points from a recent high.
Put another way, the market cap for Apple fell from around $1.10 billion to $800 billion, give or take a few billion.
Apple’s pullback may be another indicator of so-called peak smartphone, a point in the evolution of the powerful devices where users have signalled they aren’t eager to spend well over a thousand dollars for a unit not markedly different from its predecessor.
Apple does not want to be pictured as a discounter but the company may have little choice if indeed its high-end phones are selling below expectations.
Not only does Apple have to worry about its homebase in North America, it faces uncertainty in the high-growth Indian and Chinese markets. The recent detention of a senior Huawei executive here in Vancouver has particularly muddied the Chinese market for Apple, where it is already facing strong competition from home-grown product.
While much of the market attention was focused on Apple’s meteoric climb to the trillion-dollar level, Microsoft, under the steady hand of Satya Nadella, was pivoting from a server and desktop operating system business (think Windows) to a diversified company with growth in cloud computing services under the Azure brand, in software as a service with Office 365 subscriptions, and even with success in hardware under the Surface branding.
Under Nadella, who took over from the mercurial and bombastic Steve Ballmer, Microsoft has seen its share price triple, and at press time Microsoft had pulled ahead of Apple for the top spot with a market cap at around $840 billion, well ahead of the iPhone company.
Of the top four, only Amazon managed to join Apple with a trillion-dollar valuation, even if only briefly. Like Apple, Amazon had a major pullback, and at press time its $811 billion cap placed it slightly behind Apple.
Amazon has been a particularly volatile stock, up dramatically from around $1,150 a share a year ago, to about $1,640 today, but well off its peak of $2,040.
That leaves Google, or rather parent company Alphabet, in the group of four. Over the past 12 months its share price has moved between $1,000 and roughly $1,270. With a recent market cap of $733 billion, Alphabet is quite some way behind the other three.
Both Amazon and Google face potential antitrust action, a move that would not be unlike the break-up of the American phone monopoly in the United States vs. AT&T case that saw the Bell system split into smaller entities in 1982.
You may be wondering where Facebook fits into this picture. After all, it is billed as the world’s largest social media network. As measured in terms of market cap, Facebook is far behind the top four, at a little over $400 billion. In late July the company issued guidance that it expected revenue growth rates to decline. In addition, it expected expenses to grow, particularly with new security employees, a consequence of the Cambridge Analytica affair that the world learned about back in April.
In essence, since that guidance statement, Facebook has seen its share price follow a near straight-line down, with a small rebound in December.
It is interesting to watch the valuations of the top tech companies. Collectively, the top four discussed here, have a combined worth of a staggering $3.2 trillion dollars, more than the GDP of most countries.
Update to a recent column
Google parent Alphabet has announced it is speeding up plans to shutter the G+ social media platform. Citing an additional potential security concern, the company has brought the shutdown date forward to April 1.
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