Finance
The Stocks to Rule Them All: Big Tech’s Might in Five Charts
The Stocks to Rule them All: Big Tech’s Might in Five Charts
American’s tech giants have caught the public’s attention as of late.
Four of the Big Five recently appeared in front of U.S. Congress to discuss their anti-competitive business practices and privacy concerns.
Yet business is booming. Compared to the traditional economy, Big Tech operates within an intangible realm of business. This enables them to move faster, cheaper, and more profitably—with business models that possess widespread scale via the internet.
The above five charts are a reflection of Big Tech’s momentum and the significant role they have played in the swift and vigorous market recovery. Let’s take a closer look at the data.
Company | Market Capitalization (In Billions) | Weighting in the S&P 500 Index |
---|---|---|
Apple | $1,930 | 7.1% |
Microsoft | $1,590 | 5.9% |
Amazon | $1,590 | 5.9% |
Alphabet | $1,030 | 3.8% |
$742 | 2.7% | |
Total | $6,883 | 25.41% |
S&P 500 | $27,050 | 100% |
Not All Stocks Are Created Equal
Of the 505 stocks that make up the S&P 500 Index, only about a third have experienced positive returns year-to-date (YTD), with the remaining stocks in the red.
Despite the majority of companies underperforming, the S&P 500 has generated a positive year-to-date return. This is due to the fact that companies are weighted according to market capitalization. For example, the Big Five now represent 25% of the index, despite being just five of the 505 stocks listed.
Big Tech’s dominance is being driven by ballooning market valuations. For instance, Apple reached the $1 trillion valuation in August 2018, and now the company is awfully close to topping the $2 trillion mark after just two years. This is just one of many examples that illustrate the growing power of Big Tech.
Pandemic Proof?
The five Big Tech companies are also seeing business as usual, with revenues in the first half of the year growing steadily compared to the first half of 2019.
Company | YTD Price Returns | Revenue Growth (H1 2020 vs. 2019) |
---|---|---|
Apple | 52% | 6% |
Microsoft | 31% | 14% |
Amazon | 68% | 34% |
24% | 14% | |
Alphabet | 11% | 6% |
S&P 500 | 4.5% |
Their respective stock prices have followed suit, adding to the divergence between the performance of tech and the overall S&P 500 Index.
The equal-weighted S&P 500 Index provides diversification, but it has underperformed recently. Year-to-date, the equal-weighted index is down -3.5% relative to the positive 4.5% seen for the S&P 500, a spread of 8%. The combination of Big Tech’s outperformance and large weighting is likely behind the index staying afloat.
Dissecting the Disconnect
You may notice the phrase “stock market disconnect” reverberating recently, reflecting consumer views on the state of financial markets and their relationship with the economy, or lack thereof. While the economy combats record levels of unemployment and a plethora of bankruptcies, major American indexes edge closer to record highs.
This disconnect can be explained by the market capitalization weighted qualities of these indexes as well as the geographic source of company revenues in the S&P 500.
The most visible businesses to the everyday individual represent a small and vulnerable basket of companies that account for a undersized component of the stock market. No matter how clobbered they get, their effects on the market as a whole are miniscule.
A Global Footprint
In the era of globalization, American companies are more diversified than ever. Their revenue streams carry a greater global presence, meaning domestic revenues in the United States are less crucial than in times past. For example, the S&P 500’s foreign revenue exposure stands at 42.9% in 2018 and these figures are even higher for Big Tech stocks.
Revenues Recognized Outside of North America/America | |
---|---|
Apple | 55% |
Microsoft | 41% |
Amazon | 31% |
Alphabet | 51% |
54% | |
Average | 46% |
Big Tech has outdone itself by virtually any measure.
They’ve shown their capacity to translate headwinds to tailwinds, even under challenging economic circumstances. Going forward, estimates by analysts on Wall Street suggest that even more growth for these companies could be on the horizon.
Finance
Charted: How Long Does it Take Unicorns to Exit?
There are roughly 1,400 unicorns—startups worth $1 billion or more. How many years does it take these giants to get acquired or go public?
How Long Does it Take For Unicorns to Exit?
For most unicorns—startups with a $1 billion valuation or more—it can take years to see a liquidity event.
Take Twitter, which went public seven years after its 2006 founding. Or Uber, which had an IPO after a decade of operation in 2019. After all, companies first have to succeed and build up their valuation in order to not go bankrupt or dissolve. Few are able to succeed and capitalize in a quick and tidy manner.
So when do unicorns exit, either successfully through an IPO or acquisition, or unsuccessfully through bankruptcy or liquidation? The above visualization from Ilya Strebulaev breaks down the time it took for 595 unicorns to exit from 1997 to 2022.
Unicorns: From Founding to Exit
Here’s how unicorn exits broke down over the last 25 years. Data was collected by Strebulaev at the Venture Capital Initiative in Stanford and covers exits up to October 2022:
Years (Founding to Exit) | Unicorn Example | Number of Unicorns 1997‒2022 |
---|---|---|
1 | YouTube | 10 |
2 | 31 | |
3 | Groupon | 41 |
4 | Zynga | 43 |
5 | Salesforce | 36 |
6 | Alphabet (Google) | 51 |
7 | Tesla | 35 |
8 | Zoom | 59 |
9 | Coursera | 44 |
10 | Uber Technologies | 45 |
11 | WeWork | 46 |
12 | Airbnb | 35 |
13 | Credit Karma | 18 |
14 | SimilarWeb | 19 |
15 | 23andMe | 15 |
16 | Sonos | 11 |
17 | Roblox | 12 |
18 | Squarespace | 6 |
19 | Vizio | 9 |
>20 | Cytek | 17 |
Overall, unicorns exited after a median of eight years in business.
Companies like Facebook, LinkedIn, and Indeed are among the unicorns that exited in exactly eight years, which in total made up 10% of tracked exits. Another major example is Zoom, which launched in 2011 and went public in 2019 at a $9.2 billion valuation.
There were also many earlier exits, such as YouTube’s one-year turnaround from 2005 founding to 2006 acquisition by Google. Groupon also had an early exit just three years after its founding in 2008, after turning down an even earlier acquisition exit (also through Google).
In total, unicorn exits within 11 years or less accounted for just over three-quarters of tracked exits from 1997 to 2022. Many of the companies that took longer to exit also took longer to reach unicorn status, including website company Squarespace, which was founded in 2003 but didn’t reach a billion-dollar valuation until 2017 (and listed on the NYSE in 2021).
Unicorns, by Exit Strategy
Broadly speaking, there are three main types of exits: going public through an IPO, SPAC, or direct listing, being acquired, or liquidation/bankruptcy.
The most well-known are IPOs, or initial public offerings. These are the most common types of unicorn exits in strong market conditions, with 2021 seeing 79 unicorn IPOs globally, with $83 billion in proceeds.
2021 | 2022 | % Change | |
---|---|---|---|
# Unicorn IPOs | 79 | 13 | -84% |
Proceeds | $82.9B | $5.3B | -94% |
But the number of IPOs drops drastically given weaker market performance, as seen above. At the end of 2022, an estimated 91% of unicorn IPOs listed since 2021 had share prices fall below their IPO price.
A less common unicorn exit is an SPAC (special purpose acquisition company), although they’ve been gaining momentum and were used by WeWork and BuzzFeed. With an SPAC, a shell company raises money in an IPO and merges with a private company to take it public.
Finally, while an IPO lists new shares to the public with an underwriter, a direct listing sells existing shares without an underwriter. Though it was historically seen as a cheaper IPO alternative, some well-known unicorns have used direct listings including Roblox and Coinbase.
And as valuations for unicorns (and their public listings) have grown, acquisitions have become less frequent. Additionally, many major firms have been buying back shares since 2022 to shore up investor confidence instead of engaging in acquisitions.
Slower Exit Activity
While the growth of unicorns has been exponential over the last decade, exit activity has virtually ground to a halt in 2023.
Investor caution and increased conservation of capital have contributed to the lack of unicorn exits. As of the second quarter of 2023, just eight unicorns in the U.S. exited. These include Mosaic ML, an artificial intelligence startup, and carbon recycling firm LanzaTech.
As exit activity declines, companies may halt listing plans and eventually slow expansion and cut costs. What’s uncertain is whether or not this lull in unicorn exits—and declining influx of private capital influx—is temporary or part of a long-term readjustment.
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