Google Passes Exxon to Become Second-Most Valuable U.S. Company

http://www.bloomberg.com/news/2014-02-07/google-passes-exxon-to-become-second-most-valuable-u-s-company.html

by petethomas • 12 years ago

141 162 12 years ago

Oculus• 12 years ago

Undoubtedly, people will soon scream 'Bubble!', but I believe this is part of the inevitable shift of technology becoming the driver of the world's economy.

aggronn• 12 years ago

I doubt this actually. Google is a much more visible part of everyone's daily life than Exxon. If Google were more valuable than the sum of the entire petroleum industry, then we would have a problem, but as it stands, demand for Google's goods and services is much more inelastic, and relatively more valuable, than Exxon's contributions alone.

Then again, people will call anything a bubble. But its easy to see that this is not evidence of it by asking yourself if we'd be worse off if Google disappeared tomorrow vs if Exxon did.

JumpCrisscross3• 12 years ago

Google's value vis-à-vis Exxon reflects Google having a lightly regulated de facto monopoly on search in most internet connected countries, while Exxon is in a fragmented, heavily regulated industry. Technology becoming the driver of the world economy would involve it (<10%) [1] passing industry (31%) [2] in its contribution to GDP.

[1] http://www.econstats.com/wdi/wdiv_533.htm

[2] https://www.cia.gov/library/publications/the-world-factbook/...

baddox• 12 years ago

while Exxon is in a fragmented, heavily regulated industry

You seem to imply the assumption that the regulations in the energy industry don't benefit ExxonMobil.

raldi5• 12 years ago

Wikipedia lists the characteristics of a monopoly here:

http://en.wikipedia.org/wiki/Monopoly#Characteristics

Which of those characteristics do you see in Google?

cjensen• 12 years ago

Every bubble comes with people who claim a technological shift or other fundamental shift has occurred.

Instead, look at it analyitcally; A P/E of 30ish means that people think Google could grow 3X. Seems reasonable.

riggins• 12 years ago

A P/E of 30ish means that people think Google could grow 3X. Seems reasonable.

I'm on the fence. I think Google is doing amazing things and there is enormous potential. However, we're also talking about huge numbers. Annual revenue is already $60B. To go to $180B at the same margins they need huge successes. Like having self driving cars turn into a $60B/year business. Is that possible? Yes. But when you start to think about how huge the numbers are you see that its not easy.

Its hard to escape the arithmetic of the law of large numbers.

platonichvn• 12 years ago

Software truly is eating the world and this is an example of that.

return0• 12 years ago

Highest valued == Most Valuable ?

martythemaniak• 12 years ago

I know it sounds a little ridiculous, but I think Google still has a long way to grow. I can easily see them as the first trillion dollar company and well beyond that.

I think they understand the process of re-inventing themselves better than any other tech company. They acquire a lot of companies, some of which continue to grow and change the very nature of Google itself (example Android). They also understand Black Swan Farming and practice it at a level (billions of dollars at a time) that almost no one else does.

Andy Rubin's robotics undertaking is a good example. Page wrote him a billion+ dollar blank cheque and should it succeed, it'll make Google the leading robotics company - likely alone worth as much as Google today. Should it fail, well, it's only 2% of their cash pile. They've made similar bets on almost all promising future tech - AI, clean energy, the internet of things etc.

rayiner• 12 years ago

I can easily see them as the first trillion dollar company and well beyond that.

At least Saudi Aramco, if not some of the other state-owned oil companies, are already over $1 trillion.

vonmoltke2• 12 years ago

In fact, Saudi Aramco's 2012 revenue[1] was greater than Microsoft's market cap (at 4th most valuable us company).

[1] http://biz.yahoo.com/ic/55/55881.html

thewarrior• 12 years ago

I don't think the comparison is valid because Saudi ARAMCO is basically a state owned company with a monopoly over the natural resources of an entire country. If Google attains a trillion dollar valuation it would be amazing because they'd have achieved it due to their vision and hard work.

Steko3• 12 years ago

Agree the sky is the limit for Google's future but there's always some risk that FB or Baidu or someone could come in and take 80% of Google's users.

Aso by any reasonable measure Apple's market cap should be well over a trillion. Take away their $165 billion cash pile from their $465 billion market cap, give them 0% growth and you're left with the idea that Wall St's expects Apple to be turning out the lights in 4 or 5 years depending on how you value their IP, tangible assets and other investments. That's why Apple is buying Apple stock like whoa.

guelo• 12 years ago

That's the thing about Apple, they have $165 billion but they have no idea what to do with it. The only R&D they seem to be able to think of is how to make their consumer boxes shinier. No moonshots, no diversification. That's why Wall Street doesn't see any huge upside.

boomzilla2• 12 years ago

The big reason investors are skeptical with Apple is that there is no guarantee they can pull the same revenue without creating a hit product every two years. Once the revenue starts to shrink, things go downhill very quickly.

yapcguy2• 12 years ago

The first Trillion dollar company is/was PetroChina. At least for a few days.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jw...

nostromo• 12 years ago

My gut agrees. But I'm still wondering what their next hit is.

Despite a million products, they're still a one-hit-wonder in terms of revenue.

no_gravity• 12 years ago

A two-hit-wonder. 50% of their revenue comes from search and 50% from adsense.

calbear81• 12 years ago

- Self driving cars - Robotics - Connected home electronics (Nest, etc.)

millstone2• 12 years ago

I think they understand the process of re-inventing themselves better than any other tech company.

Google has never successfully reinvented themselves. They were founded as a search engine, and that's still what most people associate them with.

I would give the crown to Apple. Since Google was founded, Apple has been best known for the Mac, iPod, and iPhone at varying points, each product eclipsing the prior one in popularity, mindshare, and profit.

matznerd• 12 years ago

I prefer to live in a world where tech companies are our highest valued, not oil companies.

cliveowen• 12 years ago

These companies make the bulk of their money from consumer technology. Are you saying you value more consumer technology than energy?

saryant3• 12 years ago

The tech companies would not exist for very long without those oil companies.

valtih19788• 12 years ago

The oil does not go into gadgets. All the oil goes into your car, http://www.youtube.com/watch?v=rPS1y81b1Bw

hangonhn3• 12 years ago

Oil companies were the tech companies of their days. We take them for granted now but oil is what enabled mass industrialization and freed up labor everywhere from manufacturing to farming. Oil has disrupted more industries than you realize and has had a profound impact on human history.

_zen• 12 years ago

The thing I wish to see them focus on the most is making Google Fiber everywhere. I wish they would take their ISP division more seriously.

winslow• 12 years ago

Considering Kansas launched in September 2012 [1] that gives them a year and a half of service. They've already announced Austin and Utah (Utah starting service soon ~Feb 20 [2]). They are having to build new infrastructure to the "fiber hoods" which takes a lot of capital and time. Let alone massive political fights from the current ISPs that are sure to take months of time. I'm not sure how they could be more serious about it?

[1] http://en.wikipedia.org/wiki/Google_Fiber [2] - https://fiber.google.com/cities/provo/

dmead• 12 years ago

is it still a good idea to buy google stock?

psbp2• 12 years ago

I might be wrong, but it certainly seems overvalued.

encoderer5• 12 years ago

Do you believe Google will be a more valuable business in the future than they are today? I sure do. And i don't have any reason to believe the market has "priced in" the value of Google's future growth.

Dollar cost average into it, and be a buy-and-hold investor, and it's hard to go wrong.

cbr4• 12 years ago

    I don't have any reason to believe the market has "priced
    in" the value of Google's future growth

Why don't you think people deciding how much to pay for Google stock are considering Google's expected growth? Google's market cap is similar to Exxon's with far lower revenue and much lower profit.

    Dollar cost average into it, and be a buy-and-hold
    investor, and it's hard to go wrong.

It's not hard at all to go wrong that way: investing in only one stock is unnecessarily risky. If you're picking individual stocks you should be asking "what's my edge?" or "what do I know that other smart informed people don't?" Sure, you see lots of potential for growth at Google; so does everyone else, that's not going to make you any money. Unless you're better informed in a useful way it's much better to just buy a slice of the market with index funds.

lutusp5• 12 years ago

To answer your general question:

http://arachnoid.com/equities_myths

But specifically, by the time a company is widely regarded as successful, noteworthy, at the top of its game, the train has left the station. By contrast, Warren Buffett would invest in a "company" consisting of a couple of guys in a garage with a vision for the future.

chollida1• 12 years ago

By contrast, Warren Buffett would invest in a "company" consisting of a couple of guys in a garage with a vision for the future.

I think you meant would NOT invest in that scenario. Warren invests in

- companies with strong reoccurring revenues

- strong moats around them to protect them from competitors

- companies that are the number one or two in their chosen fields

two guys in a garage with a vision of the future is sadly missing all of these things. That's a very unlikely scenario for Warren Buffet to invest in.

corresation2• 12 years ago

By that analysis, Google "left the station" in what, 2005? Microsoft left the station in the late 80s. Apple left the station in 2005?

And to the contrast, Warren Buffer invests in things like Conoco, WellsFargo, and, humorously, Exxon.

Small doesn't mean growing. Large doesn't mean shrinking. Any analysis that assumes either is simply flawed. Buffet looks for companies with good fundamentals and returns, whether they're two guys (though I've never, ever heard of him doing such a speculative investment. That seems entirely contrary to his philosophy) or 200,000 people.

Google currently makes most of their money in advertising. Anyone paying attention knows that they're working really hard at expanding out from that, and in a few short quarters their non-advertising revenue exploded to 10% of their total (it sounds small, but 10% of a huge number is a huge number), with an incredible growth rate. If they start successfully leveraging their smarts and technology, they truly can be a trillion dollar company.

The same is true of Apple. They've coasted on the iPad/iPhone train for a while -- a very enriching coast -- but if they apply their designs and intellect to other industries, the impact can be absolutely enormous.

psbp2• 12 years ago

Can someone explain to me why the market is being so bubbly about google (yes, pun intended)? I'm just not seeing over $1000 being the long, even for google.

encoderer5• 12 years ago

They're sitting on a huge pile of cash. Back that out and look at their forward P/E. It's reasonable.

There is no reason Google shouldn't be over $1k. Except that 4 digit numbers feel big. Which is probably one reason they're doing a split.

brudgers5• 12 years ago

Whoopdee shit.

If Exxon and Google were both liquidated today which one would produce more cash? Google share prices reflect a speculator's premium. Exxon's better reflect the value of the underlying assets.

frogpelt4• 12 years ago

My thoughts exactly, but you said it so concisely.

3pt141595• 12 years ago

Exxon is sitting on a resource that will soon be replaced with a more efficient one: electricity. It is much, much, much cheaper to produce electricity in coal or nuclear plants and charge cars to run on the road than it is to refine gasoline and pump it into cars.

Google is sitting on top of the most amount of information ever collected by any profit-seeking organization ever.

Skate where the pucks going man.

brudgers5• 12 years ago

25 years ago, you might have said DEC was the puck.

15 years ago, Yahoo.

The ball is round, the game is 90 minutes. Everything else is just theory.

valtih19788• 12 years ago

More efficient? Are you on drugs?

dragonwriter2• 12 years ago

Oil isn't only used as a motor fuel, and the pace at which it is displaced as a motor fuel is unlikely to be great enough to prevent oil companies from continuing to make increasing profits selling it.

bradleysmith• 12 years ago

This is a very cut-and-dry explanation that sells Exxon's future value (and our reliance on petroleum products) way short.

Production of electricity is more efficient than production and refinement of fossil fuels. BUT, Expenditure and distribution of that energy as electricity is less efficient for use as a transportation fuel (as I understand it; correct me if I'm wrong!). This is particularly true for heavy-load transportation like 18-wheelers and industrial applications. Until battery and electric motor technology improves to provide more torque for longer periods of time, fossil fuel will be responsible for moving our STUFF around via diesel motors. The moving of that STUFF still represents the majority of our transportation fuel burned.

Exxon is also a very large investor in electric vehicle battery tech, which will be one of the key technologies to change our transportation reliance from fossil to renewable.

Also don't forget about plastics as a petroleum product; I think it will be some time before we replace plastics as a common building material.

Granted, Exxon only spends ~3% of their profits on research of any sort, which is probably less than their advertising budget, and they spend less in a year on R&D than Google does in a quarter.

I don't really mean to start an argument, and I do hear your point. Exxon is the leader in a dying business. Still, Exxon isn't ignoring the puck. They're probably as aware as anyone where the short-comings of fossil fuel transportation start and stop, and they are as interested as anyone in technology that will upend that industry.

Simp• 12 years ago

If Exxon and Google were both liquidated today

Well, that's exactly it, isn't it? Google has more potential for the future than Exxon.

haberman2• 12 years ago

By all means sell Google and buy Exxon. Check back with us in 10 years about how that went.

Exxon's better reflect the value of the underlying assets.

That's like valuing a car based on the price of the steel it contains instead of where it can take you.

JonFish852• 12 years ago

By all means sell Google and buy Exxon. Check back with us in 10 years about how that went.

I am actually going to try to track this (and I don't mean that in a bad way). I am honestly curious about this over the next 10 years.

cbr4• 12 years ago

    By all means sell Google and buy Exxon. Check back with
    us in 10 years about how that went.

Note that the expected growth of Google relative to Exxon is already priced into their market caps.

zevyoura• 12 years ago

Assessing future value is the point of the stock market, isn't it?

frogpelt4• 12 years ago

I have to say I don't understand companies that have very little in the way of tangible assets being valued higher than companies that have mounds of tangible assets.

For instance, Exxon-Mobil has $347 billion in tangible assets while most of Google's value comes from its brain trust and the vision of its leadership. The same could be said of Apple though they do have $40 billion in cash.

In other words, if both companies were offered to you at half of their current valuations and you didn't know how to run either company, Exxon-Mobil would be worth many times more to you just from being able to liquidate the assets.

I realize the market cap is based on more than that but I guess I'm wondering why tangible assets don't play an even bigger role in valuations.

EDIT: AAPL doesn't have as much cash as I thought.

encoderer5• 12 years ago

Google also has a pile of cash. And a fiber optic network. And millions of square feet of data center space.

Exxon: Assets: $350bn Liabilities: $75bn

Apple: Assets: $225bn Liabilities: $53bn

Google: Assets: $110bn Liabilities: $15bn

If you're trying to value a stock on fundamentals alone, you should take these tangible assets (as you call them), back them out of the market cap. Then look at what kind of P/E multiple you're getting. And compare that to other companies in the industry.

The big difference here is in growth rates. Google is priced for growth. And certainly you can imagine Google growing much faster over the next decade than Exxon.

yapcguy2• 12 years ago

It's sickening to see all these cash rich tech companies being worshipped, yet they don't pay their employees what they're worth, for generating all that value.

http://pando.com/2014/01/23/the-techtopus-how-silicon-valley...

brudgers5• 12 years ago

I can also envision Google being targeted by regulators and tax agencies and law makers around the globe in the next ten years. In addition their business model is vulnerable as open access networking becomes less advantageous to more businesses and it becomes increasingly feasible to inject advertising locally or strip off Google's customer's ads and replace them at the ISP level.

brudgers5• 12 years ago

If Google disappeared this weekend, we'd wake up Monday morning and our Android phones would still work, a few people would miss Play and the worst part would be listening to people complain about Bing search and everyone else's maps.

If Exxon disappeared I'd be in line at the pump filling up gas cans in addition to the tank and on my way to stockpile canned goods, potable water. and buckshot.

prayag2• 12 years ago

This is exactly how we should value companies. Depending on the chaos it would cause if they disappeared tomorrow.

KaoruAoiShiho• 12 years ago

If phones still work then it's only fair to say that the pumps, stations, etc still work and someone would take it over and provide the same services, disruption would be fairly short term.

pyoung• 12 years ago

This is a pretty bad analogy, and even at that, it's not completely thought through. Google is responsible for a lot of the infrastructure on the modern web. Gmail, ad networks, google apps, data centers, etc... If they disappeared this weekend it would be chaos.

If exxon mobile disappeared, we might see an oil shock similar to the one in the 1970's, but more likely, due to strategic reserves, we would see a gradual increase in prices, followed by a ton of investment into increasing production capacity by the other oil companies.

raldi5• 12 years ago

If Exxon disappeared, I'd ... go to a different gas station.

pswenson• 12 years ago

appl had ~$160B in cash as of their earning report last week: http://www.bloomberg.com/news/2014-01-28/apple-s-160-billion...

frogpelt4• 12 years ago

The total of the Cash + Short Term Investments + Long Term Investments is $158 billion+.

I'm not sure if this is the same as cash but it may be.

ck2• 12 years ago

Yes but Exxon doesn't pay taxes.

Exxon’s filings with the Securities and Exchange Commission, says the corporation didn’t pay any federal income tax in 2009

So Google was always more valuable to the US.

throwaway_yy2Di• 12 years ago

Yet it's so small:

                XOM ('12) GOOG ('13)
    Revenue     $453 B/a  $60 B/a
    Profit      $45 B/a   $13 B/a
    Market cap  $393 B    $394 B

https://en.wikipedia.org/wiki/Google

https://en.wikipedia.org/wiki/ExxonMobil

(101 for anyone who doesn't know this: revenue is how much you sell, profit is what's left over for shareholders, market cap is how much shareholders think that profit stream is worth).

Relevant: check out wikipedia's rankings of company size:

https://en.wikipedia.org/wiki/List_of_largest_companies_by_r... (and the see also)

milkshakes• 12 years ago

You're neglecting growth: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...

diminish• 12 years ago

One Question remaining is when Google's market value will surpass Apple's. That'll likely happen before the end of this year, so get ready for the repetition of the same HN discussion, replacing Apple with Exon.

scoofy• 12 years ago

This is a reasonable thing to point out. When valuing equities, i tend to use a strategy out of the playbook of a less famous fund manager, John Neff. That is, one that includes total return.

Indicator: Neff Ratio = (EPS growth rate + dividend yield)/PE

This is similar to the inverse of PEG, a much more common indicator, but it includes yield as part of total return. It's one of my primary screens when looking for equities, because both Exxon and Google would have good marks, even though their return would be from different sources.

skriticos2• 12 years ago

Hm, applying a bit of my personal sense, I'd say Exxon's business is drying up in the foreseeable future (oil is running out, renewable energy is on the rise).

Google is a software business with very strong network effects.

I definitely see how there is more demand for software in 100 years than for oil (as a fuel).

Economics is not a pure numbers game. They [edit: the numbers] just try abstract what the companies do now and in the future.

hawkharris• 12 years ago

Exxon Mobil invests more money in alternative energy research than any other organization in the world.

saryant3• 12 years ago

Exxon is here to stay. This is a company that has seen 19 American presidents come and go. No other company in the world invests as much in energy R&D.

hayksaakian• 12 years ago

We often ridicule tech companies for having inflated valuations. I don't disagree with this in general.

In your specific comparison, which company do you genuinely think will grow more over the next N years? Google has shown the ability to dominate multiple markets time after time.

I can't see Exxon as any more than an oil company. There's certainly nothing stopping them (any more than any other business) from innovating.

wmeredith• 12 years ago

The only market that Google has ever dominated profitably is search engine advertising. Despite, Glass, self driving cars, Android (free), Feedburner (dominated and shuttered) Gmail, Maps, etc... 96%[1] of their revenue is from selling ads.

I love a lot of Google products, but the only one they make any money on, is one I despise. It pays for everything else.

[1]http://venturebeat.com/2012/01/29/google-advertising/

igorgue3• 12 years ago

We all know what PG says the most important thing for a startup like Google is growth and that's the only thing that matters :)

MichaelApproved• 12 years ago

I believe one reason why Google and even Apple are able to surpass Exxon is because Exxon pays out a large portion of its profit in dividends while Google and Apple retain much of theirs in bank accounts as assets. If Exxon didn't pay a dividend they'd easily be the largest company in the world with regards to market cap.

ihaveajob• 12 years ago

I'm not sure that is a correct line of logic. Often, companies pump their stock prices by handing over dividends. That's a sign of a mature company, which can't expect to grow much, but is still valuable to its shareholders if it can provide results in any other way.

nicholas733• 12 years ago

The reverse is a probable case. If Exxon didn't deliver dividends and investors don't believe the company will grow, then they'd pay even less for shares. A large part of a mature's company's worth is tied to interest rates. People pile into a dividend payer because it's better than holding cash - heck they borrow cash to buy the dividend payer. So actually Exxon could be just as vulnerable to a share price fall as Apple.

Lastly, what happens if Exxon holds cash and grows a stockpile? If it's not earning money, the cash just makes a share more expensive, but the dividend as a percentage decreased. Well, the closer that percentage gets to interest rates, the less attractive the stock gets to those type of investors.

suyash• 12 years ago

"market cap is how much shareholders think that profit stream is worth"

=> Wrong, Market Cap has little to do with what you mentioned. It is calculated by determining the total dollar market value of all of a company's outstanding shares.

Ref: http://www.investopedia.com/terms/m/marketcapitalization.asp

tedsanders2• 12 years ago

Actually, both definitions are essentially the same. The market consensus sets the price.

mcherm2• 12 years ago

Actually, he is right.

We presume that no one owns shares of a company just for bragging rights. (This might not be 100% true.) We presume that no one owns shares of a company because they're irrational. (This is 100% false. But hey, economics has to assume something.)

People own shares of a company because they can get money for owning it. They can get money by being paid dividends, and they can get money by selling it to someone else after the price rises (or stays the same, or goes down). That other person will only pay for it based on the same thing: dividends paid plus the value of selling it to someone else.

So the total value of the company should be the current value of the company's total future dividends. We calculate it by multiplying the current price by the shares outstanding, but it's presumed to be an estimate of the future dividend stream.

bad_user• 12 years ago

That's not so bad.

The difference in my mind is that Exxon is making money from natural resources that are not renewable and the cost for extracting oil is on the rise. If they don't reinvent themselves, they'll die. Google on the other hand is making money out of software. Software is the artifact of our own mind. So the way I see it - for companies such as Google or Apple, the sky is the limit. For Exxon, unless they reinvent themselves, there's nowhere they can go.

And btw, isn't it awesome that software/hardware companies are starting to dominate the Top 10?

clarky07• 12 years ago

And yet Apple is making Exxon type money and still has a multiple like Exxon instead of Google.

sliverstorm3• 12 years ago

Google needs to reinvent itself too, perhaps even more & faster than XOM. The industry moves too fast for them to sit still for more than a couple years, while XOM has got decades to figure things out.

michaelochurch• 12 years ago

It'd be #1 inside of a year if it implemented open allocation.

gress4• 12 years ago

Pure speculation, given that Google hasn't launched a single successful product* since their IPO.

*giving things away for free doesn't mean they are a success

wutbrodo4• 12 years ago

Play is expected to be a $3.2 billion a year business in 2014. Where do you set the bar for "a successful product"? $5B/yr? Also I'm not sure if you're also excluding acquisitions from your arbitrary definition, but all the DoubleClick products (DFA/DFP/AdX) were post-IPO and are not even close to the same product as AdSense. Don't mistake "I don't understand what I'm talking about" with "anything that has the letters 'ad' in it must be the same product".

gress4• 12 years ago

Ok - but accepting this perspective, all validated growth has been growth in advertising. Does the P/E ratio reflect expectations for the further growth of the ad business, or is it speculation that Google can be successful in creating another type of business for which there is no antecedent?

Google Passes Exxon to Become Second-Most Valuable U.S. Company

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