Apple Hits $1 Trillion To Become First Trillion Dollar Company; But It’s Still Not The Most Valuable Company In The World

Today, Apple (AAPL) became the first $1 trillion public U.S. company. Its stock jumped 2.8 percent to $207.05 (as of 9:15 a.m. Pacific), taking its gain to 9 percent since this Tuesday, when it released its latest quarterly earnings. Apple management reported higher than expected quarterly results, and mentioned that it bought back $20 billion of its own shares.

But in spite of all of the press coverage around this major milestone, Apple is not even the most valuable company in the world. That distinction belongs to fellow tech giant Amazon. How can that be, when Amazon’s market capitalization is only a ‘meager’ 887 billion? The key lies in the metric used to measure a company’s value.

Most analysts use “Enterprise Value” rather than market capitalization to measure a company’s value because it accounts for the total operating value of the firm and adjusts for the capital structure of the firm (with equity, debt, and cash). A large part of Apple’s equity value is in the hoard of cash on its balance sheet, which doesn’t reflect the ongoing value of the company. They could use that cash to issue a dividend or buyback shares, but it wouldn’t change how much the actual company is worth based on its potential future profits. In fact, Apple typically buys back shares every quarter.

Amazon passed Apple in enterprise value back in June during its meteoric rise and is now worth $80B more than Apple. Amazon and Apple are just two of the tech giants (dare we say “conglomerates”) that now make up the most valuable companies in the world. We took a closer look at the rest of the tech giants and plotted their enterprise values over time using Sentieo’s Plotter tool.

 

Tech Giants Enterprise Value

Sentieo

Interactive Chart: http://snt.io/c8B2JRXn2

Looking at the chart, we can see that Apple (black line) and Google (red line) had been leading the pack since 2016. However, around February of this year, Amazon surpassed them both to become the most valuable, and after some back and forth, broke away at the beginning of June.

Facebook (blue line) and Netflix (purple line), while also members of the “FANG” group, actually have much lower enterprise value that Amazon and Apple.

 

Regardless of Enterprise Value or Market Cap, Tech Is Taking Over

The more important thing to note is that these tech giants are taking the stage as the world’s most valuable companies, both in enterprise value and market cap. In July, CNBC reported that the majority of the returns this year on the S&P 500 index have from tech giants. The tech companies in the table below are responsible for 99 percent of the S&P 500 returns this year, meaning the rest of the S&P remained almost flat. (Data as of July 10, 2018)

This hasn’t been the case since the last dot-com boom in the 1990s, when Cisco was anticipated to become the first trillion dollar company. We plotted a few tech and oil companies to look at how market leadership has changed over the past 10 years.

The large grey spike in 2008 represents PetroChina’s peak market cap.

In 2006, Microsoft (blue line) had the fourth largest market cap but was still eclipsed by Exxon (orange), GE (black), and PetroChina (gray) — and closely followed by Total (teal).

In 2011, Apple (red) came in third place to Exxon and PetroChina.

But in 2016, Apple (red), and Microsoft (blue), Amazon (purple) and Facebook (green) all took the top 4 highest market cap spots, dissimilar to the situation today.

 

Market Cap: Tech vs. Oil 

Interactive Chart: http://snt.io/aHB2JPRNV

Based on their monstrous market share, we anticipate that the tech giants will rule for a while — unless another unexpected dot-com crash occurs.

Dissecting The Latest Netflix Earnings Transcript

The following analysis was prepared using tools offered by Sentieo. Sign up for a free trial.

We let our data scientists loose on NFLX’s latest conference call transcript. High-level takeaway:  NFLX is sounding a more muted tone while the Street is still excited, and the stock is at a high.

Key takeaways:

1.  Management sentiment has fallen two quarters in a row. (blue line below)

 

2.  The spread between Management sentiment and Analyst sentiment has fallen to a recent low, implying that while Management is getting less bullish, analysts are not yet changing their tone.

spread

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Analyzing $NFLX Recent Earnings Beat With Alternative Data

Netflix’s stocked soared over 10% in after-hours trading last Tuesday after the Q2 earnings call in spite of an EPS miss at $0.15/share (vs. $0.16 projected). Since Netflix is still growing rapidly, the stock trades mostly on subscriber growth, rather than earnings. As you can see from the chart below, subscriber growth, especially in International Markets, blew out analyst estimates:

Netflix Subscriber Growth Vs. Estimates

Since subscriber growth is not as easily analyzed by the core public financial data companies are required to release, we used Sentieo to look at alternative datasets like keywords in earnings transcripts, search volume, Twitter mentions, and website traffic to analyze Netflix’s incredible performance

First, we looked at words tied to international markets that were referenced in transcripts using our earnings call Keyword Tracker:

Mentions of keywords in Netflix Earnings Call Transcripts

Notice that Europe, Asia, Korean, and Germany saw their largest number of conference call mentions ever when comparing to previous earnings calls. Reed Hastings continued to speak to success with content creation in Europe and Latin America, but also has his sights set on Asia:

Snippets from the most recent $NFLX Earnings Call

NFLX’s chief of content creation, Ted Sarandos, spoke specifically about Korea and Okja (a Korean-Hollywood collaboration that has been a huge hit for Netflix) both of which were surfaced in the keyword tracker above:
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Bears Be Warned, Pandora $P Quite Literally Bought The Quarter

We are huge fans of Tim Westergren, who wrote the textbook on scrappy startups having founded and led Pandora through the tech implosion of the early 2000s. Doing everything to keep Pandora alive, from convincing employees to defer salaries, to maxing out personal credit cards, Tim’s vision of a Music Genome Project (US Patent 7,003,515) ultimately proved immensely valuable. But that was a decade ago.

p11

Since then, huge competitors from adjacencies like Apple ($AAPL) and Youtube ($GOOGL), well funded entrants like Amazon ($AMZN), to startups like Spotify and Tidal, have waded into the space with new technology. Spotify today was the subject of fresh discussions around an $8bn IPO while Pandora languishes at a $3bn market cap. A combination of 1) a subscription-based business model, 2) on-demand listening and 3) curated discovery has proven extremely successful and has presented a serious threat to Pandora’s lean-back, low ad load, passive listening model.

Tim has returned to rescue Pandora once again. Pandora’s pivot is 6 years too late, but late is better than never, and they are now pulling out all the stops. In this post, we show:

  • How the Street has gotten Pandora’s modeling so very wrong – and is still doing it!
  • How Pandora is ex growth in users and in technology
  • How to track Pandora on operator metrics using our Mosaic product and ask the right questions
  • How to import custom data sets into our Plotter and answer those questions

Put your favorite playlist on, and let’s begin!

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Why Netflix ($NFLX) Will Never Raise Prices Again

On Friday we wrote a blog post predicting a deterioration in $NFLX’s domestic and international businesses after analyzing web & social data available through Sentieo’s Mosaic offering. Yesterday $NFLX did indeed miss top and bottom line numbers and lowered guidance on quarterly net additions for both domestic and international segments, with management, largely blaming ”un-grandfathering” of lower prices. Management even used Google Trends to illustrate increased awareness of Netflix price increases un-grandfathering in their presentation and blamed increased media coverage for deterring new members.

 

We used Sentieo to take a closer look and found a profound result- Netflix has had three previous mentions of price increases un-grandfathering and each mention has consistently led to large decelerations in consumer interest and revenue growth. Put another way, yesterday’s miss and messaging is hardly a new phenomenon and suggests this is a structural headwind, meaning Netflix has much less pricing power than bulls (and management) have hoped for.

 

In the chart below we track social mentions of “Netflix price increase” via both Google Trends (green) and Twitter (black) as well as YoY growth in Google Trends searches for Netflix (dark blue dashed line).

nflx2

Notice the red boxes here indicate social mentions of price increases and in each case we see immediate deceleration in Google Trends growth. With “un-grandfathering” only half-way through, $NFLX will continue to face a significant membership growth headwind over several quarters, as traffic continues to be impacted by perceived price increases. This could be an even longer-term concern if, in the face of rising competition and content costs, $NFLX’s ability to raise prices is impeded.
Sentieo’s Mosaic service can be used to analyze real-time trends in a number of consumer, Tech/TMT, and healthcare companies. Using Mosaic, you can keep a real-time pulse on consumer interest for the stocks you follow, yielding better decision-making and better returns. Simply go to Sentieo.com and sign up for a free trial. If you would like to continually receive content related to topics of interest in the markets, don’t forget to subscribe to the Sentieo Blog so that we can notify you of new posts by e-mail. 

Latest Trends in Cord Cutting

Consumers are dropping their cable TV subscriptions at higher rates as they spend more time online and switch to smaller packages like Netflix, Amazon and Hulu.  In this quick post, we will show you how to use Sentieo to analyze this trend and see who is most exposed.

Doing a basic search on “cord cutting” in our Document Search the first key takeaway is how much more companies are mentioning “cord cutting” in their filings and transcripts.  You can see below with the red bar chart, how the number of mentions has grown over the last year.

Cord Cutting Read More