1/ Thread: Big tech's cash hoarding and its implications
At the end of 2Q'20, here is the Net Cash balance (Cash-ST and LT debt) of the big tech:
$AAPL +73 Bn
$GOOG +106 Bn
$MSFT +54 Bn
$FB +48 Bn
$AMZN -19 Bn
Total net cash balance of big tech: $263 Bn
At the end of 2Q'20, here is the Net Cash balance (Cash-ST and LT debt) of the big tech:
$AAPL +73 Bn
$GOOG +106 Bn
$MSFT +54 Bn
$FB +48 Bn
$AMZN -19 Bn
Total net cash balance of big tech: $263 Bn
2/ What's the value of $263 Bn? Should it be just $263 Bn or more? Maybe even less?
If you are shareholder of any of these big tech, here's the base, bull, or bear case.
Base case is in a ZIRP world, there's not much upside to cash sitting in the balance sheet. Cash is cash.
If you are shareholder of any of these big tech, here's the base, bull, or bear case.
Base case is in a ZIRP world, there's not much upside to cash sitting in the balance sheet. Cash is cash.
3/ The bull case is you have $263 Bn cash in some of the most astute capital allocators of our time.
What are the odds that they (at least some or maybe even just one of them) will make a very good use of this cash. I know their hands will probably be tied in case of mega M&A.
What are the odds that they (at least some or maybe even just one of them) will make a very good use of this cash. I know their hands will probably be tied in case of mega M&A.
4/ But is it unlikely that some of them organically will come up with something big like AWS?
As their stocks keep rising, big tech will continue to attract bright kids out of college. I guess the worst case for big tech would be if their stocks become dead currencies for...
As their stocks keep rising, big tech will continue to attract bright kids out of college. I guess the worst case for big tech would be if their stocks become dead currencies for...
5/...next 10 years.
Mr. Market is perhaps trying to do exactly that, but it just never seems to discount enough? The same story repeats, and big tech trumps $SPY year after year.
Mr. Market is perhaps trying to do exactly that, but it just never seems to discount enough? The same story repeats, and big tech trumps $SPY year after year.
6/ What's the bear case for this humongous cash balance?
Big tech continues to reinvent themselves by gradually destroying their own business models, and aggressively go to areas that makes sense. They get the courage to do that through their pristine balance sheets.
Big tech continues to reinvent themselves by gradually destroying their own business models, and aggressively go to areas that makes sense. They get the courage to do that through their pristine balance sheets.
7/ Ultimately, for Bezos, a personal wealth of $160 Bn or $1.6 trillion are both fuzzy numbers. Those numbers probably don't really mean much either to him or do it make any sense to us.
What Zuck or Bezos probably cares much more is the longevity of the business.
What Zuck or Bezos probably cares much more is the longevity of the business.
8/ If that requires to destroy current business model and makes their companies stuck at $1 or 2 trillion business for 10-20 years, so be it.
Protecting the size of the castle maybe more important than expanding it.
Protecting the size of the castle maybe more important than expanding it.
9/ The big tech certainly deeply understands about the innovators' dilemma. Is the dilemma too powerful that mere understanding is not enough?
Would the dilemma lead to the inevitable downfall even though they know that's exactly how they would fail?
Would the dilemma lead to the inevitable downfall even though they know that's exactly how they would fail?
End/ Following big tech will be an intriguing exercise for next 10-20 years, as it has been for last 20 years.
These are perhaps some of the best business models the world has ever seen, and we will speak about them for a long period of time regardless of the outcome.
These are perhaps some of the best business models the world has ever seen, and we will speak about them for a long period of time regardless of the outcome.
