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China’s Ultra Rich Lost $100 Billion in Just One Month

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What Goes Up, Must Come Down

There’s no doubt that China’s market has been a roller coaster as of late. A year ago, the Shanghai Stock Exchange Composite Index was at close to 2,000 points. However, by June 12, 2015, it skyrocketed to a peak of 5166.35, creating trillions of dollars of paper wealth.

From there, participants in the market have had their will tested, as the market suddenly corrected by dropping 30% in the course of one month.

The Bloomberg Billionaires Index tracks the world’s 400 richest people in the world, including 26 from mainland China. Taking a look at the value of their portfolios can provide some insight as to the ride they are on. Here’s the change in wealth of billionaires in China versus those in Germany for this year:

Change in Wealth of Billionaires, China vs Germany

China’s ultra wealthy were up 35% from the start of the year in late May and early June. Then the market crash hit, reeling in their gains to just 10%.

Since then, the stock market has had a bit of a bounce, bringing gains year-to-date to 16% as of last week:

Change in Wealth of Billionaires in 2015

The portfolios of billionaires in the United States and Western Europe are boring in comparison. The wealthiest people in the United States have lost 1% so far in 2015, and those in Western Europe fared better with a 4% increase.

Here’s the whipsaw stories of two Chinese billionaires:

Zhou Qunfei

Zhou Qunfei is China’s richest woman and serves as the chairman of consumer electronics supplier Lens Technology Co Ltd.

Zhou’s fortune soared when Lens Technology IPO’d earlier in the year, as the stock jumped 500% in early trading. Her fortune went up to $10 billion in a matter of months. Then, with the June crash, 40% of her fortune was erased as it decreased by $5 billion.

Zhou Qunfei's wealth

Pan Sutong

Pan Sutong is the Chinese-born chairman of the Goldin Group, a conglomerate based in Hong Kong. In January, Pan Sutong had $3.7 billion in wealth. Stock in Goldin’s subsidiaries soared, and Mr. Sutong had increased his fortune to peak at an impressive $25 billion.

Since then, the stocks have gotten crushed, bringing him back to where he started: $4 billion.

The Implications of the See-Saw

Most investors in the Chinese markets are “mom and pop” investors – Credit Suisse thinks that 80% of urban Chinese have money in stocks, and many of them don’t even have a high school education. Because of this, there is likely to still be strong volatility as this new group of investors collectively learns how to trade in the market.

China’s ultra rich, meanwhile, are trying to lock in their gains by diversifying elsewhere. This is because the wealthiest people in the country have an unusual amount of wealth tied to public markets compared to the rest of the world: 66% of the wealth of billionaires in China and Hong Kong is “paper wealth” in the public markets.

In the United States and Western Europe, it is less than 50%.

To even out their portfolios, the ultra wealthy have sought out real estate both in China and in foreign markets. This is something we covered out in a recent Chart of the Week as Chinese investors left the volatile stock market in search for a better store of wealth.

See below:

Chinese flee stocks for foreign property in June

Original graphics from: Bloomberg

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Technology

How Big Tech Makes Their Billions

The big five tech companies generate almost $900 billion in revenues combined, more than the GDP of four of the G20 nations. Here’s how they earn it all.

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How Big Tech Makes Their Billions

The world’s largest companies are all in technology, and four out of five of those “Big Tech” companies have grown to trillion-dollar market capitalizations.

Despite their similarities, each of the five technology companies (Amazon, Apple, Facebook, Microsoft, and Alphabet) have very different cashflow breakdowns and growth trajectories. Some have a diversified mix of applications and cloud services, products, and data accumulation, while others have a more singular focus.

But through growth in almost all segments, Big Tech has eclipsed Big Oil and other major industry groups to comprise the most valuable publicly-traded companies in the world. By continuing to grow, these companies have strengthened the financial position of their billionaire founders and led the tech-heavy NASDAQ to new record highs.

Unfortunately, with growth comes difficulty. Data-use, diversity, and treatment of workers have all become hot-button issues on a global scale, putting Big Tech on the defensive with advertisers and governments alike.

Still, even this hasn’t stopped the tech giants from (almost) all posting massive revenue growth.

Revenues for Big Tech Keep Increasing

Across the board, greater technological adoption is the biggest driver of increased revenues.

Amazon earned the most in total revenue compared with last year’s figures, with leaps in almost all of the company’s operations. Revenue from online sales and third-party seller services increased by almost $30 billion, while Amazon Web Services and Amazon Prime saw increased revenues of $15 billion combined.

The only chunk of the Amazon pie that didn’t increase were physical store sales, which have stagnated after previously being the fastest growing segment.

Big Tech Revenues (2019 vs. 2018)

CompanyRevenue (2018)Revenue (2019)Growth (YoY)
Apple$265.6 billion$260.2 billion-2.03%
Amazon$232.9 billion$280.5 billion20.44%
Alphabet$136.8 billion$161.9 billion18.35%
Microsoft$110.4 billion$125.8 billion13.95%
Facebook$55.8 billion$70.8 billion26.88%
Combined$801.5 billion$899.2 billion12.19%

Services and ads drove increased revenues for the rest of Big Tech as well. Alphabet’s ad revenue from Google properties and networks increased by $20 billion. Meanwhile, Google Cloud has seen continued adoption and grown into its own $8.9 billion segment.

For Microsoft, growth in cloud computing and services led to stronger revenue in almost all segments. Most interestingly, growth for Azure services outpaced that of Office and Windows to become the company’s largest share of revenue.

And greater adoption of services and ad integration were a big boost for ad-driven Facebook. Largely due to continued increases in average revenue per user, Facebook generated an additional $20 billion in revenue.

Comparing the Tech Giants

The one company that didn’t post massive revenue increases was Apple, though it did see gains in some revenue segments.

iPhone revenue, still the cornerstone of the business, dropped by almost $25 billion. That offset an almost $10 billion increase in revenue from services and about $3 billion from iPad sales.

However, with net income of $55.2 billion, Apple leads Big Tech in both net income and market capitalization.

Big Tech: The Full Picture

CompanyRevenue (2019)Net Income (2019)Market Cap (July 2020)
Apple$260.2 billion$55.2 billion$1.58 trillion
Amazon$280.5 billion$11.6 billion$1.44 trillion
Alphabet$161.9 billion$34.3 billion$1.02 trillion
Microsoft$125.8 billion$39.2 billion$1.56 trillion
Facebook$70.8 billion$18.5 billion$665.04 billion
Combined$899.2 billion$158.8 billion$6.24 trillion

Bigger Than Countries

They might have different revenue streams and margins, but together the tech giants have grown from Silicon Valley upstarts to global forces.

The tech giants combined for almost $900 billion in revenues in 2019, greater than the GDP of four of the G20 nations. By comparison, Big Tech’s earnings would make it the #18 largest country by GDP, ahead of Saudi Arabia and just behind the Netherlands.

Big Tech earns billions by capitalizing on their platforms and growing user databases. Through increased growth and adoption of software, cloud computing, and ad proliferation, those billions should continue to increase.

As technology use has increased in 2020, and is only forecast to continue growing, how much more will Big Tech be able to earn in the future?

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Visualizing the Size of Amazon, the World’s Most Valuable Retailer

Amazon’s valuation has grown by 2,830% over the last decade, and the tech giant is now worth more than the other 9 largest U.S. retailers, combined.

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Visualizing the Size of the World’s Most Valuable Retailer

As brick-and-mortar chains teeter in the face of the pandemic, Amazon continues to gain ground.

The retail juggernaut is valued at no less than $1.4 trillion—roughly four times what it was in late 2016 when its market cap hovered around $350 billion. Last year, the Jeff Bezos-led company shipped 2 billion packages around the world.

Today’s infographic shows how Amazon’s market cap alone is bigger than the nine biggest U.S. retailers put together, highlighting the palpable presence of the once modest online bookstore.

The New Normal

COVID-19’s sudden shift has rendered many retail outfits obsolete.

Neiman Marcus, JCPenney, and J.Crew have all filed for bankruptcy as consumer spending has migrated online. This, coupled with heavy debt loads across many retail chains, is only compounding the demise of brick-and-mortar. In fact, one estimate projects that at least 25,000 U.S. stores will fold over the next year.

Still, as safety and supply chain challenges mount—with COVID-19 related costs in the billions—Amazon remains at the top. It surpasses its next closest competitor, Walmart, by $1 trillion in market valuation.

How does Amazon compare to the largest retailers in the U.S.?

10 Largest Public US Retailers*Market Value July 1, 2020Market Value July 1, 2010 Normalized % Change 2010-2020Retail Revenue
Walmart$339B$179B90%$514B
Costco$134B$24B458%$142B
Amazon$1,400B$50B2,830%$140B
The Kroger Co.$26B$13B107%$118Be
Walgreens Boots Alliance$36B$26B38%$111B
The Home Depot$267B$47B466%$108B
CVS$84B$40B112%$84B
Target$60B$37B64%$74B
Lowe's$102B$29B251%$71B
Best Buy$23B$14B59%$43B
Combined value of retailers (without Amazon)$1,071B

Source: Deloitte, YCharts
*Largest public US retailers based on their retail revenue as of fiscal years ending through June 30, 2019, e=estimated

With nearly a 39% share of U.S. e-commerce retail sales, Amazon’s market cap has grown 2,830% over the last decade. Its business model, which aggressively pursues market dominance instead of focusing on short-term profits, is one factor behinds the rise.

By the same token, one recent estimate by The Economist pegged Amazon’s retail operating margins at -1% last year. Another analyst has suggested that the company purposefully sells retail goods at a loss.

How Amazon makes up for this operating shortfall is through its cash-generating cloud service, Amazon Web Services (AWS), and through a collection of diversified enterprise-focused services. AWS, with estimated operating margins of 26%, brought in $9.2 billion in profits in 2019—more than half of Amazon’s total.

Amazon’s Basket of Eggs

Unlike many of its retail competitors, Amazon has rapidly diversified its acquisitions since it originated in 1994.

Take the $1.2 billion acquisition of Zoox. Amazon plans to operate self-driving taxi fleets, all of which are designed without steering wheels. It is the company’s third largest since the $13.7 billion acquisition of organic grocer Whole Foods, followed by Zappos.

Accounting for the lion’s share of Amazon-owned physical stores, Whole Foods has 508 stores across the U.S., UK, and Canada. While Amazon doesn’t outline revenues across its physical retail segments—which include Amazon Books stores, Amazon Go stores, and others—physical store sales tipped over $17 billion in 2019.

Meanwhile, Amazon also owns gaming streaming platform Twitch, which it acquired for $970 million in 2017. Currently, Twitch makes up 73% of the streaming market and brought in an estimated $300 million in ad revenues in 2019.

Carrying On

Despite the flood of online orders due to quarantines and social distancing requirements, Amazon’s bottom line has suffered. In the second quarter of 2020 alone, it is expected to rack up $4 billion in pandemic-related costs.

Yet, at the same time, its customer-obsessed business model appears to thrive under current market conditions. As of July 1, its stock price has spiked over 51% year-to-date. On an annualized basis, that’s roughly 100% in returns.

As margins get squeezed and expenses grow, is Amazon’s growth sustainable in the long-term? Or, are the company’s strategic acquisitions and revenue streams providing the catalysts (and cash) for only more short-term success?

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