Apple at the highest, Alphabet hit but not sunk

February 19, 2020

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The markets are volatile, it is well known, and the last delivery quaterly GAFAnomics made by Fabernovel conveniently reminds us of this. A quarter ago – almost a century ago – "the situation was difficult, especially with the difficulties encountered by WeWork, so that we wondered if we were going or not towards the crash" recalls Jean-Christophe Liaubet.

A virtual microsoft created in three months

Three months later, the twenty tech stocks in the Fabernovel sample have a record market capitalization – the study's reference period is from November 7, 2019 to February 7, 2020. The index of 20 tech companies (which includes Asian companies like Baidu or Samsung) is the sector which has grown the most, posting a + 18%, when sector number 2 (health) is only 10%. And all the indicators are green. In the last quarter studied, the sales of the 20 companies increased by 23%, the profit before taxes and taxes (Ebit) by 17% and the free cash flow (FCF) by 20%.

To summarize the magnitude of the phenomenon, Fabernovel experts indicate that in one quarter the capitalization of the 20 companies reached 1.3 trillion dollars, or the annual capitalization of Microsoft. Or to say it: with all the money capitalized in a quarter, we could create ex nihilo a new Microsoft as big as today.

The stars: Apple and Tesla

These good financial results express "the confidence of analysts and market operators in the strategies and economic models of these companies" explains Jérémy Taieb, financial analyst at Fabernovel. This is for example the case of Netflix, whose operating profit jumped 113%. But for Fabernovel, the top of the quarter is on the side of Tesla, whose market capitalization was doubled in one quarter. For the second quarter, the company is generating profit, which is all the more good news as it is done while investing in factories. Hear that if she stopped doing so, the margins would improve further. The financiers noted it well.

Apple is also named as the surprise for the better of the quarter with excellent results, recording the best quarterly income in its history … thanks to the success of the iPhone 11. The Apple model is built in such a way that more of phones sold means more services consumed, which is a most interesting multiplier effect on all fronts.

Alphabet and Facebook: it's okay, but it could be better

The flop is to be found on the Alphabet side, due to the slowdown in income linked to the online research activity, without diversification income really taking over. YouTube has disappointed with "only" $ 15 billion in one year against the 20 expected by analysts. Result: the result is 7% below market expectations. For those who worry, it should be noted that it reached $ 9.2 billion, up … 14%. But financiers expected more and do not like to be disappointed.

Fabernovel's study goes beyond the latest results and also looks back over the past decade. Among the most striking lessons is the gap between economic performance in the real economy and its financial translation. The case of Facebook in this regard is unique. Mark Zuckerberg's company saw its share price multiply by 6 when its sales were multiplied by 14. The evolution of Microsoft's share price is the same, while its sales only doubled over the period. For comparison, with sales multiplied by 11, Amazon has seen its course be multiplied by 20. Should we see a distrust for the sustainability of the company led by Zuckerberg? Is the company paying for doubts about its privacy policy following the Cambridge Analytica affair, so that scholarship holders are wary?

A challenge: sustainability

The study is also interested in environmental policies carried out by companies in the tech sector, by studying all the ambiguities. If, explain the analysts, it is indisputable that the firms in the sector make efforts, it is necessary to follow their actions closely with their suppliers and their subcontractors to have a complete picture of their actions.

They are also faced with a real dilemma. On the one hand, more and more funds and investors are closely following the strategies of tech companies in environmental matters. On the other hand, the business models of these companies are based on a growth in the number of users of their services who consume them always longer. It also reveals "conflicting demands from stakeholders: investors, consumers and also employees," said Agathe Martin, project director at Fabernovel Alpha. Employees want a company that offers them meaning and responsible commitment, but are also satisfied to work for a rapidly growing employer able to offer them projects and mobility. How much is human schizophrenia valued in the markets? The study can be viewed here.

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