Thread by @the_brumby

DOES BIG TECH LOVE BIG LOCKDOWN?

A bit about the lockdown economy & why it may appear that, despite many businesses being decimated, others (including the economy as a whole) seem in no hurry to exit. With public co’s having reported, we can now look back on 2020 in full.
1/13

For my non-finance followers, 1 thing to understand is the economy—like a stock index—is effectively capitalization-weighted. This means the biggest companies have the most impact & the smallest are mostly irrelevant, both w/r/t econ metrics & co’s influence on gov/policy
2/13

Below is a good visual of what I mean using the S&P500. The 5 biggest companies have a weighting equal to the bottom 350. So you can barely see a company like General Motors worth $75B, let alone a local shop that—pre-lockdown—made $75k/yr & might be worth $1m (if public).
3/13

These companies are MASSIVE and got a lot bigger during lockdown (around ~50% bigger, charts to follow):
Apple: $2.01 trillion
Microsoft: $1.74 trillion
Amazon: $1.55 trillion
Google: $1.37 trillion
Facebook: $826 billion
4/13

As noted above, in our crony capitalist environment, these co's weight also applies to their influence/pressure on govt policies. So how did 2020 go for the big 5? Let’s look. *Note these aren’t the biggest % movers (eg pharma), just the biggest co’s with the most impact.
5/13

Amazon, in Q4 ‘20, reported QUARTERLY rev. of $125B, exceeding $100B in one qtr for the 1st time, annual sales at $386B, up > 38% from ‘19
Amazon also hired 500,000 people (!!), increasing employees 63% over ‘19. I’ve read 10Ks for 2 decades and never seen anything like that
6/13

Microsoft reported QUARTERLY rev. of $43B, up 17% from last yr, beating expectations by $3B. Its profits were up 34% year over year (YoY). Its cloud business grew 50% YoY due to “the dawn of a second wave of digital transformation sweeping every company and every industry”
7/13

Apple reported the next day and its numbers were even more spectacular. Quarterly revenue was a record $111.4 billion, up 21% from a year ago, beating consensus estimates by an astonishing $8.5B. Apple generates $50 million in sales every HOUR. Profits were up 35% YoY.
8/13

Alphabet (Google parent) reported astounding figures Feb 3, like qrtrly rev. of $57B, up 45% from last year! Their advertising segment benefitted from "the shift toward a digital economy" (lockdown). YouTube now reaches more 18-49 yr olds than all other TV networks combined
9/13

Facebook reported earnings Jan 27 for Q4 ‘20 that were 52% (!!) higher than Q4 ‘19, with total rev. up 33%. They have 2.7B monthly active users (MAUs) with all eyeballs “working” from home

Do you think any of these companies are in a hurry for things to go back to normal?
10/13

The message here is that the biggest co’s in the S&P500 (a benchmark for the US economy) have literally never performed better. Nothing wrong with that. But we shouldn’t be surprised they & their employees aren’t in any hurry to exit lockdown, despite its broad devastation.
11/13

If these co's were drowning-rather than your local bars, shops, theaters, venues,etc-we'd be out of lockdown already. Worth noting they are all HQd in lockdown states

Lockdowns also cause the Fed to keep low interest rates, which drives up valuations for growth companies
12/13

Lastly, for other companies profiting from COVID-mania, see this piece from @JordanSchachtel
dossier.substack.com/p/welcome-to-t…

I should note, for comparison, S&P500 earnings are still trickling in but appear to be down as a whole about 12% for 2020