These are the seven largest publicly listed companies in the world, ranked by enterprise value:
There are several striking facts associated with this list:
- These seven companies together are worth a total of $8.5 trillion. What is $8.5 trillion? It is what it would cost to buy every single publicly listed European company (UK included).
- Their value is about 30 times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). A normal company has been valued, historically, at less than one third of that (about 8x).
- The seven companies are in the same sector. We have never seen such a concentration of wealth in the corporate sector, or all the largest companies operating in a similar sector
- Total taxes for all these companies amount to $34.7bn, or 16% of their EBIT, that is just 0.4% of their total value. That is not a lot of taxes paid.
- Amazon, Apple, Facebook and Google were recently criticised by US congressional investigators for engaging in what they saw as anti-competitive, monopoly-style tactics. Nor is this list exhaustive. I do not see how they will manage to continue to operate like this in the long-run. But I do not see this stopping next year.
...the issue of common ownership will be even more centre-stage.
The conglomerate and massive concentration angle, however, may be corrected sooner. It would not take long for American competition authorities to go back to a point in time when they were rejecting many proposed acquisitions, and when they were breaking up large companies (remember AT&T among others?).
The public would probably benefit more than it would suffer from having Facebook being a separate entity to WhatsApp and Instagram. Similarly, Amazon is a retailer of sorts, but also an IT company competing with IBM for the big business of cloud computing, and it is also growing a video-producing and streaming business competing against Netflix and Disney. These activities do not have a direct link; we are facing a 1980s-style conglomerate, of a kind which ended by being split up.
I expect action there as early as 2021. And when that happens the issue of common ownership will be even more centre-stage: you may break up a company but if the different pieces are held by the same shareholders, then did you really break them up?
The monopoly factor
Another important element is that at least two of these companies could be seen as natural monopolies: Amazon and Google. This notion means that they operate in a segment where it is most natural to have a single operator.
Historically, the solution to this situation is to nationalise the natural monopoly or to have a special tax on it (e.g. by auctioning the monopoly right). I do not think we are close to such a regulatory intervention, but it could happen in the medium or long run.
The valuation of these companies is wild, and it is difficult not to see a correction, especially if the tax and competition authorities are more active next year. As these companies have some positive organic growth that is higher than that of the average company, I would not expect their value to be divided by three as suggested by the valuation ratio mentioned above (30x versus 8x EBITDA), but anywhere between a one-third decrease and a one-half decrease over the next two years would be logical.