My first FAMGA (an acronym for Facebook, Apple, Microsoft, Google and Amazon) post, “The Profound Implications of 5 Increasingly Dominant Tech Companies”, published on April 9th, is now my most read and “liked” blog post ever. While there may be some hyperbole in Downtown Josh Brown’s tweet about the post when he wrote “the rise of Big Tech is the only thing worth talking about now”, the implications of these five dominant companies is profound, and still evolving. So I’m going to continue writing about FAMGA, because even if it’s not “the only thing” worth talking about now, it certainly bears greater consideration.
The purpose of this post is to highlight some of the recent events that indicate that FAMGA’s March to Global Domination is accelerating.
Apple Becomes First Company To Reach $800 Billion Market Cap
On May 8th, Apple became the first company ever to be eclipse $800 billion:
As my core FAMGA thesis is that FAMGA’s domination will continue to grow, market cap milestones are important sign posts.
Not including the first 11,381 days it took Apple to go from $0 to $100 billion in value, Apple has added $100 billion in market cap every 519 days for the past 10 years (or over $196,000,000 every single day for the past 3,635 days to be exact). Assuming Apple maintains this pace, it will hit $1 trillion in market cap on December 16, 2019. One analyst already has a $1 trillion price target for 2018.
Snap’s Earnings Miss Was Due To Facebook/Instagram, And Snap’s Competitive Response Appears Limited
Anther core aspect of the FAMGA thesis is that each of the five companies has achieved such scale in their core markets, that it creates significant competition barriers. Snap shareholders apparently discounted this fact, as the shares fell more than 23% in after hours trading after Snap reported disappointing user growth (due to Facebook’s Instagram).
As has been widely reported, Facebook’s Instagram launched Instagram Stories, it’s clone of Snapchat Stories, in August last year, and it quickly grew a larger daily audience than all of Snap:
When Facebook’s network is 12X bigger than yours, and they can quickly clone your best features, how do you effectively compete? Snap CEO Evan Spiegel was asked that on the earnings call. He responded “Look, I think if there’s one thing that I’d want to communicate today, it’s probably just the overall importance of creativity to our business. And I mean this from every perspective, from the team that we hire to how they work together; the creative culture that we have; the products that we have that inspire people to create. And I think our overall strategy, obviously which is to deliver value through creativity. And I think the bottom line is, like, if you want to be a creative company you’ve got to get comfortable with and basically enjoy the fact that people are going to copy your products if you make great stuff.”
I think that’s just a long way of saying “our growth is going to continued to be limited by the massive competitive advantage enjoyed by Instagram”. I get creativity/innovation as a great value creator. That’s why Apple is worth $813 billion. But it took HTC more than 18 months to come out with the first Android phone, it was a weak competitor, and HTC didn’t have a massive network advantage to leverage. It took three years for the first truly competitive Android phone. Snapchat, and it’s investors, are learning the hard way that creativity is not a competitive moat, but scale is a competitive moat, and Facebook is leveraging it’s moat well.
The First FAMGA Presentation At A Major Investment Bank Technology Conference
In another sign of the rising interest in FAMGA, on May 9th, I had the pleasure of presenting at Jefferies 2017 Technology Conference in Miami.
It was a packed room, and the feedback was positive, although I got some pushback on different aspects of the presentation (e.g. IBM’s poor positioning, the commoditization of AI…). The presentation was followed by a fireside chat with Brain Fitzpatrick, Jefferies’ star equity analyst Brian Fitzgerald. The presentation is now on Slideshare.
FAMGA Continues To Gain Share of The Largest 100 NASDAQ Companies By Market Cap
The main thesis of FAMGA is that it will continue to grow in share of market cap. And in just the last month, since the first major FAMGA post, FAMGA has gained 7.7%, adding another $206 billion in market cap, to reach a combined $2.676 trillion in total market cap. Thus, in the last month FAMGA gained another 1.3% share of the total market cap of the 100 largest NASDAQ companies by market cap.
It took Apple 30 years to create it’s first $100 billion in value. IT took FAMGA a month to create it’s last $200 billion in market cap. Turns out, it’s a FAMGA world, and we’re just living in it.