While Alphabet recently became the third U.S. member of the trillion-dollar valuation club, it may take some time yet to find the next candidate
Jan. 30, 2020
About midway through January, Google’s parent company Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) became the third U.S.-based company to cross the trillion-dollar threshold in terms of market valuation. It might take a while to find the next company to join the elite four-comma club of Google, Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT), but who are the contenders?
*UPDATE 01/31/2020: After a stellar earnings report, Amazon rejoined the trillion-dollar club following a pre-market rise of 11%.
This one might be cheating somewhat as Amazon (NASDAQ: AMZN) was a one-time member of the trillion-dollar club, crossing the threshold briefly in September 2018. The company is now worth between $930-$940 billion as of January 2020 and is by far the closest U.S.-based firm to reaching those lofty heights.
Its price has actually remained relatively flat in comparison to other tech giants, up 14% year to date, compared with the S&P 500’s (NYSEARCA: VOO) 28%. However, having grown roughly 1300% in the past decade, the company still has a lot more to give. The main catalyst behind Amazon’s growth is it’s Amazon Web Service cloud segment, which reported an operating income of more than $2.2 billion last quarter alone. On top of this, the company is now the third-largest digital advertising platform in the U.S. and its e-commerce business still has plenty of room to grow.
The holiday quarter will be an important one for the company, and should it beat expectations, it will likely cross the trillion-dollar threshold once more.
The next trillion-dollar club member looks a bit further off the mark as social media giant Facebook (NASDAQ: FB) sits at a ‘paltry’ $630 billion. CEO Mark Zuckerberg has seen his company’s stock caught in an 18-month tug-of-war between bullish investors focused on Facebook’s strong operating results and bearish ones who cannot look past its multiple indiscretions.
After the company’s stock fell 44% from its heights of July 2018, the social media giant has roared back to the top, rising about 50% in the past year. While past performance is not a reliable indicator of a company’s future, at such a pace, Facebook could well hit the trillion-dollar mark within 2 years.
Its advertisement business continues to grow, with revenue growing faster-than-expected last quarter by 29%, as the company seeks to diversify into payment solutions and even hardware, despite bad luck in both ventures in recent years. Should Facebook avoid many more major legal battles — however unlikely that be — and continue to grow, it is a reasonable candidate to become a trillion-dollar club member.
It’s run by possibly the greatest investor of all-time — Warren Buffett — it has a wonderfully diversified portfolio of great businesses, and there is a strong succession plan in place so that growth can continue. Perhaps not considered the most exciting stock, Berkshire Hathaway (NYSE: BRK.B) has risen more than 240% over the past ten years, compared to the S&P 500’s 190% in the same period.
Today, Berkshire’s top holdings include stocks like Apple, Coca-Cola (NYSE: KO) and Bank of America (NYSE: BAC), meaning that much of its success is reliant on others. However, it is still ‘only’ worth $560 billion, as of January 2020. Likewise, growth over the past five years has been slow — barely more than 50%. Buffett has been holding on to a massive cash pile, likely in preparation for a market downturn, in which case Berkshire may well come out the other side of such an event even stronger.
Berkshire will hit the $1 trillion mark eventually, but as the tortoise in this race, it is not likely to be any time soon.
Digital payments are on the rise, fueled by portable devices and 5G networks with Visa (NYSE: V) at the forefront of this movement. Visa stock leads most rivals — which includes Mastercard (NYSE: MA) and Paypal (NASDAQ: PYPL) — with a 66% profit margin, while earnings have grown at an annual rate of 25% over the past three years. Wall Street expects Visa earnings per share to rise by 14% to $6.20 in 2020, then a further 17% in 2021.
This would not be nearly enough to see the $446 billion valued company come close to the trillion-dollar mark, but at its current rate, it would surpass Facebook within three years. Visa’s dominance in the credit and debit market has afforded it some very highly visible earnings, giving it a stable market premium.
As a cashless future becomes more likely, Visa is primed to become a trillion-dollar company this decade.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon, Berkshire Hathaway, Facebook, and Visa. Read our full disclosure policy here.