Public Markets

The Big 5 Are Worth $4 Trillion Heading Into Earnings

Welcome back to earnings season.

Tomorrow starts off big for the tech industry. Microsoft will become the first among tech’s most significant American players to drop its quarterly digest.

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The rest of the Big 5 will report on July 23rd (Alphabet), July 25th (FacebookJuly 26th (Amazon), and July 31st (Apple). By the end of this month we’ll have seen all the major platform players move through the earnings wringer.

We care about this earnings cycle as it likely matters more than most. One year ago, the Big 5 crossed the $3 trillion market cap line. The stakes are even higher now as the companies are all worth more. Here is what is driving our attention:

  • $4 trillion: After market close today, the Big 5 are worth $4.08 trillion. If the firms are worth the fresh $1 trillion that they have earned over the last year is an interesting question. It seems slightly reasonable to say that the largest American tech shops have grown their value by 33 percent in a year. But when you consider the same differential in raw dollars it’s tougher to agree with.
  • $2.95 billion: That is the number that tracks—roughly, bear in mind—the value creation that the Big 5 have undergone daily in the last year. Every day. For a year.
  • The Netflix wobble: Netflix’s growth in recent years has seen it often lumped into a basket of stock with the larger firms. However, Netflix was slammed by investors when it missed growth targets earlier this week. Its stock slid more than ten percent after hours. The message appears to be that public investors aren’t in the mood to tolerate growth declines.
  • Stretched Valuations: The gains in market value by the Big 5 have not all been generated by growth in revenues and profits. Indeed, multiples have growth. A rising price-earnings ratio has accompanied Microsoft’s parabolic share price. Only Apple remains conservative compared to historical results.
  • The markets are weaker than you think: Tech has driven a material portion of recent market gains. That means that the gains we’ve seen by some indices aren’t as strong as they look if we isolate technology companies. There’s less up under the market than you might have thought.

The Big 5 could have a great earnings cycle and set new market highs. But things seem more brittle than before. And with a shiny new market cap milestone under their belt, there’s more weight to any decline that the Big 5 may post.

Also keep in mind why we care about big, public tech companies. They set the ruler for a lot of what smaller, private tech companies get in terms of fundraising, valuations, and M&A offers. If the big tech companies take a dive, it can chill things all the way back to seed.

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