Complex Made Simple

Guess who beat both Apple and Amazon to $1trn, but kept it secret

Amazon and Apple have been in a race this whole year towards a shared goal of $1 trillion market cap.

Apple beat them to it last month, becoming the first publicly traded company in the US to reach the astounding milestone.

Amazon, refusing to give up, made the news this week when it finally reached the 13-digit figure, only to fall back $5 billion shy by the end of the day.

In a small corner in the Middle East, you have oil giants biding their time. Saudi expects Aramco’s delayed IPO to boost the company’s valuation to $2 trillion, dwarfing Apple and Amazon’s recent achievements.

In fact, an April estimate by Bloomberg already puts Aramco’s current valuation at around $1.2 trillion, making Aramco way ahead in this vanity race – a race it doesn’t really want a part in.

But why is this?

Non-government owned businesses run things differently with different objectives

State-owned companies like Aramco are often difficult to properly appraise because the governments owning them would rather not disclose their affairs. Furthermore, since they are often state-owned, and not listed on the stock market, it makes it very difficult to properly valuate them.

In June, the Natural Resource Governance Institute (NRGI) called on Saudi Aramco to disclose closely-held data ahead of its planned 2018 initial public offering, after its new research ranked the kingdom among the world’s most opaque oil-producing nations, the Financial Times (FT) reported.

“Until now, it has not been clear what is in Aramco’s books,” one of the authors of the report said. FT continues his account, saying that “like many state-owned resource companies, it has historically only had to answer to the state.”

Other state-owned oil companies like the Kuwait Oil Company (KOC), the Abu Dhabi National oil Company (ADNOC), and the Iraq Oil Company are very difficult to value, and this is their intention.

In the West, private groups and individuals, not the state, own most oil companies such as ExxonMobil and BP.

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Who’s next to join Apple and Amazon?

Alphabet, the parent company of Google, and Microsoft, are the next runner-ups in the race for $1 trillion.

According to Wall Street analysts, Microsoft still has a ways to go before it scores the 13-digit goal, and is not likely to reach that milestone within the next 12 months.

Alphabet is in a similar boat. They’re currently at an $829.23 billion market cap, and still have about $170 million to go.

American oil company ExxonMobil is hot on their heels, and could join the likes of Aramco and PetroChina past the $1 trillion market if it exhibits an average per share growth of 10%, CNBC reports. (Note, though, that PetroChina hasn’t been worth $1 trillion for more than a decade now, but in 2007 was the first company in the world to cross the benchmark.)

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Why did Apple beat Amazon?

Like a scene out of a racing film, Apple and Amazon were going head to head in their ‘race’. What truly gave Apple the push it needed to cross the finish line were not only the outstanding sales of their iPhone, but also the sales of their other products and services, such as the iWatch and AppleTV. Q2 2018 saw a sales increase of 37% year-on-year, the Guardian reports.

By July 31st, Amazon was still holding a market cap of around $870 billion, 3 days before Apple hit its target. It took them 1 month to catch up.

Despite coming in second place, Amazon has still done wonderfully for themselves over the years.

Statista explains: “An initial investment of $180, enough to buy 10 shares in May 1997, would now be worth more than $240,000. Next to the stock price’s climb from $18 to more than $2,000, the huge return on investment can be attributed to three stock splits, which turned one share bought in 1997 into twelve shares by the end of 1999.”

On Tuesday, Amazon’s shares rose as high as $2,050.50, pushing it past the 1$ trillion threshold.

(Graph: Statista)

One of the reasons Amazon might have lost the race is because of the controversies that have arisen surrounding the company’s aggressive push towards their goal, which some media outlets report has led to the company abusing workers’ rights.

Furthermore, the company has been locked in a controversial feud with US president Donald Trump, who’s been butting heads with the company for a while now over matters of trade, tax, anti-Trump propaganda, and more. After buying the Washington Post, which subsequently criticized Trump, Amazon came under fire from the US president.

INFOGRAPHIC: Here’s how Amazon became what it is today

What’s next for the two companies?

When one brings up stories of great success, the myth of Icarus and Daedalus is often brought up: The son who flew too high to the sun in arrogance, only to end up crashing down into the ocean, meeting his demise.

PetroChina, the first company in the world to hit the $1 trillion mark, went through this exact ordeal. Soon after their market cap had exceeded all expectations, with an opening price valued at 60 times analysts’ forecasts for its 2007 earnings per share, the company crashed – astronomically.

The 2008 financial crisis had hit soon after, and everything from oil to the stock market had exhibited a monumental collapse. 10 years later, in 2017, PetroChina was worth 82% less since the IPO, USA Today explains.

In the coming years, Apple could see a continued rise in value, as the reported iPhone XS is right around the corner, which is certain to bolster share value even more.

Amazon, on the other hand, might not be as lucky. Despite growing their business ventures, the company’s adrenaline-fueled bull run across the $1 trillion mark will mean the company needs to slow down and consider life past the finish line.

On its way to its goal, Amazon has rubbed a few people the wrong way, as mentioned earlier. How it contends with the repercussions of its actions will be the deciding factor in its future success.

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