World’s largest companies by market value
The world is changing upon us, there is no debate on that. But how are these changes affecting the world’s most valuable companies?
In 1992, the world’s 10 largest companies in terms of market value were Exxon, Walmart, Altria, GE, Coca Cola, Merck, IBM, P&G, Bristol-Myers and J&J [1]. All these companies had different core business that ranged from energy, retail, tobacco, beverages, pharmaceutical, technology, consumer goods… but 9 out of these 10 companies had something in common, they all offered tangible products.
Now, let’s have a look at 2017 most valuable companies: Apple, Alphabet, Microsoft, Amazon, Fb, Berkshire Hathaway, Tencent, Alibaba, J&J, JPMorgan Chase [2]. 7 out of these 10 companies’ business core is technology, AI or internet-related affairs.
Based on this, most people could infer that customer behavior has shifted throughout the years, that people are buying less tangible products and spending more money in technology and that is why the world’s most valuable companies have changed.
This is not entirely true. Yes, we are spending loads of money in technology. We would save for months in order to get the latest iPhone or videogame console but that is not the whole story. The truth is that we still need all those products sold by 1992’s biggest companies. We still need energy, medicine, goods, we still drink Coca Cola and we still smoke. In fact, most of these companies have actually increased their income and profits dramatically in these last 25 years. Walmart, for example, had net sales of 43.9 billion of dollars in 1992 [3] and 500.34 billion of dollars in 2018 [4]. However, these companies are now “sharing” their profits with companies such as Google, Facebook and Amazon in order to reach more customers.
These latter companies built by cunning technology experts, are not much more than publicity agencies and thousands of companies are paying for their services. They are shifting from TV or billboard ads to virtual advertising. Therefore we are not only talking about changes in customer behavior, we are talking about changes in the way companies market their products. Companies like Walmart, Coca Cola and P&G amongst thousands and thousands more are using invaluable data from millions of users around the world gathered by Google, Facebook and Amazon to target their potential customers and increase their sales.
On top of this, these tech giants regularly take on other emerging or already competitive tech companies to keep on growing[5]. In 2012, for example, Facebook acquired the photo service Instagram and only 2 years later the messaging platform WhatsApp as well. Microsoft bought the business network LinkedIn in 2016. This way, the tech companies diversify their offer.
To conclude, the world’s most valuable companies have shifted to technology because of their continuous diversification, their growing influence and power through the user data they are constantly accumulating and the flow of information they are helping to shape. They control the access that advertising companies have to consumer data [6]. So it all comes down to a business funnel: there are thousands of companies selling the products we need, but only a few companies –tech companies- have user data to target and increase those sales and that is exactly why they have become the dominant player in the global market within two decades.
References:
[1] [2]. Eschenbach C. (2018, June 29). Sequoia Conference. Stanford University. Leading Trends in IT.
[3]. Walmart 1992 Annual Report. Retrieved July 3rd from: http://www.annualreports.com/HostedData/AnnualReportArchive/w/NYSE_WMT_1992.pdf
[4]. Walmart 2018 Annual Report. Retrieved July 3rd from: https://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-2018_Annual-Report.pdf
[5] [6]. Wiget, Y. (2018). So eroberten Techfirmen die Welt. Tages Anzeiger. Wirtschaft. Retrieved July 4th from: https://www.tagesanzeiger.ch/wirtschaft/unternehmen-und-konjunktur/so-eroberten-techfirmen-die-welt/story/18722965
4 comments on “World’s largest companies by market value”
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Besides my studies in Mexico City, I was working in Procter and Gamble but I will be starting an internship in Google Mexico as of August 2018.
This change additionally leads to very interesting new investing quandaries. As these new technology companies sky-rocket in value in short time periods they bring with them new exceptions for investors for massive short term gain. Once metric of this is the crazy price-to-book (P/B) values some Silicon Valley unicorns have. This P/B essential measure the value of the company against its tangible assets. In the case of a company like Facebook (who derives its value mainly form the intangible value of connecting people) this number is staggeringly high around 7.5. This is more than double Walmart who sits a top this years Fortune 500 list. I think your observation is a very apt one, and the ramifications can be seen in all aspects of business.
With the coming of technology era, there’s an inexorable trend that Internet companies are taking the place of big industry companies in market value. I think one important reason for their high market value comes from the higher growth rates. It’s acknowledged that Internet companies grows faster than traditional industry, and they have steeper profit curves. Therefore, investors tend to set higher expectations to them when making valuation, causing the rise of market value. Also, as you mentioned, innovation has promptly increase the efficiency and lower the cost of business. Helpful use of client data accounts for this interesting phenomenon
An excellent example of how most valuable companies have shifted to technology and are using data to target costumers is Walmart. Walmart, recently, filed a patent for facial recognition technology which goes beyond face recognition; it will also be used to determine how costumers feel about their shopping experience, use data from Facebook, Google, and Amazon and target them in future visits. Also, this technology will be able to identify frustrated costumers and take actions, like informing an employee before the customer complains.
[1] https://www.forbes.com/sites/shephyken/2017/10/15/walmart-moves-from-traditional-retailer-to-high-tech-innovator/#3e6ac95127bf