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.

Amazon Competes With Everyone — And Wins

This article was originally posted on Forbes.

No other company has done a better job of attracting constant media attention than Amazon ($AMZN). With shares hovering around $1,000 per share, the retail-tech giant now stands as one of the four largest companies in the S&P 500 with a nearly $500 billion market cap. That represents a more than 50,000% return from the $1.73 IPO price two decades earlier. Investors fortunate enough to snatch up shares when it first hit the public market can comfortably call themselves millionaires.

While shares no longer look cheap by any traditional metric, money managers believe ongoing investments will result in even greater future returns. This is because Amazon has shown a remarkable ability to succeed in new spaces that it expands into. This is in many ways, the opposite of conventional wisdom. Large corporations often struggle when they stray outside of their core competencies. Amazon has been able to flip this script.

Amazon’s ability to accomplish this comes in large part from the leadership of its CEO, Jeff Bezos, who has consistently pushed the philosophy of, “Day One.” This excerpt from Amazon’s last letter to shareholders illustrates his commitment:

“Jeff, what does Day 2 look like?”That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?

Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.”

Of course, the true measure of success for any public company and its philosophy is how its share price performs. As Amazon’s reach has broadened into new industries, the number of companies who need to mention Amazon as a competitor has broadened as well.

We used Sentieo’s advanced document search to construct a query that uncovers every mention of Amazon as a competitor in public company filings (10Ks, 10Qs, 8Ks, earnings calls, investor presentations, etc.) in the last 10 years. In the chart below, you can see that mentions of Amazon have grown considerably over the past 10 years while the stock price has also grown in lockstep.  

Mentions of “amazon competitors” in public filings and AMZN stock price (Source: Sentieo Document Search)

Drilling down into specific sectors, the same pattern shows itself. Take Air Freight and Logistics, a nascent segment of Amazon’s business, for example. It was only in 2016 that Amazon first made an announcement to lease 20-40 Boeing jets to augment their distribution capabilities. If we look at the mentions of Amazon in only Air Freight and Logistics company filings, we again see the number of mentions skyrocket. Read More

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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According To One Metric, This Could Be The Best Time For Stock-Picking In A Decade

This article was originally posted on Forbes.

The last three years have been dismal for fundamental long/short managers, and stock picking at large. However, at Sentieo, our analysis shows that we are currently in the best environment since before the 2008 crash for picking stocks. Now, that isn’t to say that this is the best time to buy stocks, nor is it a prediction of fund performance. But, according to an analysis of one metric, cross-correlation, the current market should provide an unusually ripe environment for stock picking.

First, a bit about what we mean by cross-correlation: The pairwise correlation between two stocks is a value between -1 and 1, that indicates how likely the two securities are to move in the same direction. Over a given time period, two stocks that perform identically will have a value of 1, two stocks have no correlation at all will have a value of 0, and two stocks that are perfectly inversely related will have a value of -1.

We ran the pairwise correlations between every stock in the S&P 500 and every other stock in the index (249,500 computations!) from the 2007-8 financial crisis until now. Averaging all of the correlations provides an indicator of how much stocks move in tandem with each other. If the cross-correlation is 1, there would be no opportunities for stock picking since all stocks would move in tandem with each other. The higher the value of the index, the more difficult it is to make money by selecting individual securities at that point in time.

The graph below shows the cross-correlation for the entire S&P 500 over the past decade. There are a few important takeaways from this chart. First, it is clear that the cross correlations of the S&P 500 are at decade lows. Second, we see a preponderance of large spikes in the data.

S&P 500 Cross-Asset Correlation
S&P 500 Cross-Correlation

As you can see, the spikes correspond with market shocks, the major macro events of the last decade. The jump in cross-correlation following a market shock is to be expected. When this sort of event happens, the entire market tends to turn in one direction as it collectively decides to buy or sell. The most recent inflection point, however, the 2016 election of Donald Trump in the United States, behaves differently.

The 2016 US Presidential election has driven correlations to new lows. Furthermore, correlations in the market actually began dropping prior to the November 8th election day, around the time when then-FBI Director James Comey sent a letter to Congress on October 28th. As opposed to the market shocks where the market all reacts in the same direction, it seems the collective market doesn’t know how to react to Donald Trump with any certainty. In other words, as of today, Donald Trump is an inherently uncertain entity that is creating opportunities for security selection.

Impact on Hedge-Fund Returns
As shown in the chart below, hedge fund monthly returns for long/short equity managers tend to react inversely to cross-correlation, as we would expect. This provides further validation to the idea that cross-correlation is a solid predictor of the overall environment for stock picking.

Monthly Returns of Long/Short Equity Funds
Monthly Returns of Long/Short Equity Funds

We can further apply cross-correlation to show the volatility of selected sub-sectors of the S&P 500. Doing so, we can demonstrate which specific sectors may have benefitted the most from the US election, again, purely from a stock-picking perspective.

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Introducing The Sentieo Trump Tracker: Follow The President’s Impact On Your Investments

trump-tracker-facebook-og-image (2)

Today, we are excited to introduce the Trump Tracker. It’s a bot that constantly scans new public financial documents for mentions of President Trump. These documents include all SEC filings, conference call transcripts, investor presentations, press releases, and more. The bot instantly surfaces new mentions of Trump as soon as they’re published, while intelligent queries automatically sort them into topics like Obamacare, Mexico, and NAFTA.

Anyone interested in following the administration’s impact on public companies can engage with the Trump Tracker by checking the dedicated website, following the @trumptrackerbot Twitter account, or signing up for a daily email alert on the site.

The Trump Administration is Now a Stated Risk Factor for Public Companies

When we last wrote about the Trump administration at the end of January, we noted that the markets paid six times as much attention to the new president’s policies as compared to those of President Obama over a comparable time period. Sixty days after President Trump moved into the White House, we see that trend continuing.

The number of regulatory filings mentioning President Trump sharply increased after Inauguration Day on January 20th. We measure a total of over 1750 filings mentioning President Trump from January 20th through March 22nd, 939 of which are SEC documents.

There is a significant change in the tenor of those mentions as well. We see references to President Trump shifting from high-level comments to more formal statements in the “Risk Factors” disclosure sections of SEC filings. Overall, 60% of references to President Trump within SEC filings are in the “Risk Factors” section. This is a substantial increase from the less than 15% we observed during the presidential campaign. This trend is even more pronounced in the healthcare industry, where we find that 85% of mentions since Inauguration Day were contained in these sections.

This shift is illustrated in the graph below:

Each bubble in the above graph represents an industry, while the size of each bubble corresponds to the number of SEC filings mentioning President Trump in that industry. The higher the bubble, the larger the share of those mentions present within “Risk Factors” sections. The dotted line, meanwhile, represents the average share of Trump mentions within “Risk Factors” sections across the market.

As you can see, both the number of mentions and the share of those mentions contained within “Risk Factors” sections has increased significantly since Inauguration Day.

In the months preceding President Trump’s inauguration, only about 15% of mentions were contained in “Risk Factors.” Over the past two months, that number has increased to 60%.

In total, Trump has already been mentioned in the “Risk Factors” sections of 10% of all 10Ks filed across all industries since January 20th.

Why are Tech and Consumer Discretionary so quiet?

We are surprised to find that only 4% of technology companies’ 10Ks and 10Qs filed since January 20th mention Trump at all. Likewise, in the Consumer Discretionary category, only 4% mention Trump.

These industries are reliant on overseas manufacturing and foreign workers, both of which are threatened by the President’s stated policies. We would have expected therefore to see a larger share of cautionary statements. These results, therefore, leave us wondering if management teams are rightfully dismissive or if they are hiding their heads in the sand?

Big Topics, Little Attention

Some prominent topics are largely absent from filings despite having been flagged repeatedly by market participants as a high risk. These include:

  • The Wall: We found only one SEC filing referring to Trump’s wall on the Mexican border.
  • Immigration and H-1B Visas: This is a key issue for many tech companies but also several other industries from Agriculture to anything with a high-street. H-1B visas are not mentioned at all, and Immigration in general is mentioned in only three SEC filings since January 20th.
  • NAFTA: Though Trump has threatened to renegotiate NAFTA, which could threaten American agriculture and associated industries, we find only eight mentions of the topic in SEC filings since January 20th.

Below is a summary table with the results for several key recurring themes of President Trump:

Source: Sentieo Document Search

Methodology

The Trump Tracker is built on top of Sentieo’s powerful financial document search and keyword alert engine. The Bot is constantly scanning through over 9 million financial documents that include SEC filings, conference call transcripts, investor presentations and press releases.

To generate the alerts, we built a series of complex queries that search for the word “Trump” in the proximity to other keywords. In most of these queries we also automatically filter out mentions of some of Trump’s businesses so that our alerts are more focused on real mentions of President Trump. However, the Trump’s Businesses filter allows you to see these mentions.

We plan on adding additional themes and would love your feedback. If you have an idea for a new theme, please email us at trumptracker@sentieo.com.

Banner image of Trump (at top) from AP Images. 

Wall Street Consensus Trades Fell Apart in 2016: 16.2% Underperformance

Following Consensus Trades worked in 2013 and 2014, and started to lose some money in 2015. After running the numbers, we were shocked to see this developing consensus underperformance trend accelerate by 1270bps for 2016.

We analyzed Thomson Reuters’ I/B/E/S dataset and looked at instances where analysts were unanimously bullish or bearish on a stock.  It turns out that analysts recommendations correlated strongly with share price performance.  However, there was one tiny caveat: the buys dramatically underperformed the sells in 2016.  The unanimous buys were up 4.5% while the unanimous sells were up 20.7% so a market neutral consensus portfolio lost ~16.2% last year.  It turns out that 2016 was a year where betting against the analyst herd paid off!

share-price-distribution-chart-02
The chart above shows the distribution in share price performance between both cohorts. (The bullish group had outliers up +1618% and +1189% that are not shown.) While the winners in both groups performed roughly the same, the losers in the bullish group fell more than the bearish group.

One major factor behind the underperformance was the bullishness surrounding small-cap development-stage pharma stocks.  For healthcare stocks (which were mostly small-cap pharma names in our cohorts), the number of consensus buys outnumbered the sells by a factor of 13.7X versus a baseline rate of 2.24X.

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Why $SNAP Will Be The Most Unprofitable Social Media IPO Ever

Note: The S-1 dropped on Feb 2nd revealing that Snap made $400m in 2016 but spent $900m, which means we severely underestimate the degree of losses at Snap. Chief among the negative surprises was the negative gross margin indicating the very costly hosting needs of Snapchat’s services. Follow our live annotations for more.


 

Snapchat lost $130m in 2014. Despite getting serious about monetization and growing revenues 11,000%, we estimate operating losses have grown significantly, making $SNAP the most unprofitable social media IPO in history.

Allegations of misrepresented growth numbers are flying today after a heavily redacted copy of a lawsuit from Snap’s former head of Growth was leaked to local media. Although the company is no stranger to high profile lawsuits, sentiment on the famously reclusive company will focus on the few datapoints that the market has. We aim to help clarify the discussion by compiling the public consensus and filling in the blanks for the unknowns so far, from Fidelity’s consecutive writedowns to a rash of extremely expensive acquisitions. We provide a full working model for Snap’s revenues and costs and demonstrate why Snap needs to represent high octane growth for its upcoming IPO (hint: show me the money!)

The potential reallocation dollar shift. Source: hootsuite

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Mosaic Quick Take: $FIT needs a new New Year’s Resolution (and guide)

Fitbit (FIT) surged over +7% earlier this week after the Fitbit app jumped to the #2 spot on iTunes on Christmas Day. Although short interest was 30% of float, there was a desire in the market not to be offside if the company’s wearable bands were once again a popular gift for the holiday season. 

It was not long before some analysts and news outlets pointed out that Fitbit was not highlighted as a top overall best seller by amazon.com this year (Link: http://blogs.barrons.com/techtraderdaily/2016/12/27/fitbit-wasnt-a-winner-in-amazons-holiday-press-release-notes-cfra/). Momentum reversed and the stock fell back to previous levels in a few days.

In this post we show how subscribers used Mosaic to track Fitbit in realtime.


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Fall of Dawn of Titans: $ZNGA’s Terrible, Horrible, No Good, Very Bad Launch with Apptopia data

ZNGA stock is off 15% since launching Dawn of Titans worldwide on Dec 8. While it is normal for gaming companies to see sell-the-news reactions following expected catalysts, the evidence that Mosaic users are seeing with Apptopia data indicate that there is serious cause for concern as the momentum at launch has completely fizzled out. We have gotten great feedback from you on our first post detailing what we were looking for on launch day, and thought it was time to take a look at the real data 2 weeks in.

znga1

The Current State of Affairs

As we established in part 1 of this post, iOS is overwhelmingly likely to be the strongest driver of overall revenues. This is where the key worldwide numbers for DoT shake out two weeks in:

While engagement is still holding up at around 30%, downloads seemingly peaked at a total of 1.86m and DAU’s peaked out at 567k. This was likely not helped by the (well telegraphed) Dec 15 launch of Super Mario Run which is now firmly at the top spot in iOS rankings.

Heads Up

To the extent that Dawn of Titans was never meant to be a mass-appeal casual game, the lack of extended growth is fine as long as monetization of the hardcore gamers holds up, but we are also seeing revenue and ARPU peak out (although it is very early days still). Using Sentieo’s advanced visualization technology, we are able to put games heads up to each other to answer important questions: did Dawn of Titans meaningfully threaten Clash of Clans?

znga3

 

The data does not look good.

As always, we welcome all feedback on these thoughts. As always, Sentieo Mosaic subscribers can request access to Apptopia data in their charts.