|All $bn||Enterprise Value||EBITDA||EBIT||Total Current Taxes|
These are the 7 largest publicly listed companies in the world. And several striking facts come out of this simple summary table here:
- These 7 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. A normal company has been valued, historically, at less than one third of that (8x).
- The 7 companies are in the same sector!! We have not only never seen such a concentration of wealth in the corporate sector, and even less so observed all the largest companies operating in a similar sector
- All these companies are full-on various regulatory loopholes: i) $34.7bn of taxes paid – 16% of their EBIT and 0.4% of their Total Value; ii) Potentially predatory acquisitions; for sure they are huge conglomerates; and seem to have some anti-competitive strategies in place.
They have avoided a lot of taxes, and 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 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 down 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 Insta. 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 here a 1980s style conglomerate, which ended up being split up. I expect action there as early as 2021. And when that happens the issue of common ownership will be even more center-stage: you may break down a company but if the different pieces are held by the same shareholders, then did you rally break down these companies?
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 nationalize 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 should 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 their simple valuation ratio, but anywhere between a one third decrease and a one half decrease over the next two years would be logical.
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