Why Facebook Will Bankrupt First Out Of The Technology Giants

Richard Fang

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There is no doubt with the recent events across the world, the technology giants have emerged to be some of the most valuable companies in the world. These include companies like Facebook, Apple, Amazon, Microsoft, and Google (Alphabet).

The so-called FAAMG (Instead of Netflix, it is replaced with Microsoft) club accounts for nearly 6.6 Trillion dollars of market capitalization (as of July 23). To put it in perspective, these five companies account for almost a quarter of the entire market capitalization of the S&P 500.

Even at enormous sizes, we’ve seen big companies fall for a variety of reasons, including bankruptcy to hostile takeovers (e.g., Compaq and HP).

As Jeff Bezos stated himself, even at Amazon’s size, he foresees that even one day perhaps in the future, Amazon will inevitably fall as well.

“Amazon is not too big to fail,” Bezos said, in a recording of the meeting that CNBC has heard. “In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” — Jeff Bezos

However, out of these five tech giants, which one has the most likelihood of falling first?

Let’s take a deeper dive into each starting with the first two least likely to fall.

Amazon

Segueing straight into Amazon, Bezos has grown this behemoth from his garage into one of the biggest tech companies in the world today. Launched on July 16, 1995, Amazon originally started off selling books before venturing into other products.

Even with Bezos’s comments, Amazon has one of the most diversified portfolios within the tech giants, and COVID-19 has positioned them in a fortunate position with massive growth in the last few months. Their shares are up by more than 60% and they have increased their market cap by more than $600B in 2020.

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As seen above, Amazon is extremely diversified with products ranging from its their e-commerce platform to its cloud and subscription services.

One of the unique positions Amazon has is its portfolio hits both B2C and B2B segments.

With this, their revenue growth is one of the highest from the tech giants, growing at a rate of 26.39% year over year since the quarter ending March 31, 2020.

Here are some of their recent figures:

  • Amazon revenue for the quarter ending March 31, 2020, was $75.452B, a 26.39% increase year-over-year.
  • Amazon revenue for the twelve months ending March 31, 2020, was $296.274B, a 22.66% increase year-over-year.
  • Amazon’s annual revenue for 2019 was $280.522B, a 20.45% increase from 2018.
  • Amazon’s annual revenue for 2018 was $232.887B, a 30.93% increase from 2017.

They are also the market leaders in e-commerce and cloud

Amazon is also the market leader in their respective product space. Recently, they have gobbled up even more market share in the e-commerce market as many have turned to online shopping due to COVID-19. On top of that, Amazon is the biggest public cloud vendor, owning almost 1/3 of the market with the segment looking to grow continuously.

With COVID-19, Amazon has been in prime (pun intended) position to capitalize and will most likely drive this momentum in following years. Even if there is a tech crash, Amazon is most likely one of the best positions to ride the wave out.

Microsoft

Microsoft is the oldest on the list but one of the most successful companies in the world. Founded in 1975 by Bill Gates and Paul Allen, it has had its ups and downs since its inception as well as leadership changes in the last few decades.

https://img.particlenews.com/image.php?url=0tUm96_0XtPMUuI00Source: https://www.visualcapitalist.com/how-tech-giants-make-billions/

Like Amazon, Mircosoft is extremely diversified even with runner up products like Bing.

Bing, however, is still profitable growing at a rate of 9–14% per quarter and still accounts for almost 6.4% of Microsoft’s total revenue (more than a service like Linkedin). They are also growing at a modest 14.56% since the last quarter of March 31 in 2020, putting them in a favorable growth rate over some of the other tech giants in the list.

  • Microsoft revenue for the quarter ending March 31, 2020 was $35.021B, a 14.56% increase year-over-year.
  • Microsoft revenue for the twelve months ending March 31, 2020, was $138.699B, a 13.49% increase year-over-year.
  • Microsoft’s annual revenue for 2019 was $125.843B, a 14.03% increase from 2018.
  • Microsoft’s annual revenue for 2018 was $110.36B, a 14.28% increase from 2017.

Biggest advantage = Enterprise

One of the major advantages Microsoft also has over other businesses is their influence within the enterprise space. With this, the company has had significant success with not only Microsoft Azure and their office products but recently, with products like Microsoft Teams.

With such a big enterprise footprint, Microsoft has been able to expand newer products into its B2B customer base and also grow their cloud footprint.

This diversified portfolio of products, as well as a huge footprint within the enterprise space, cements Microsoft for many more years to come and will be the unlikely tech giant to fall first along with Amazon.

The only drawback is, in a lot of these product categories, including search, cloud, and gaming, they are only second to the market leader (E.g., Google for search and Amazon for cloud).

The only drawback is, in a lot of these product categories, including search, cloud, and gaming, they are only second to the market leader (E.g., Google for search and Amazon for cloud).

Apple

There is no doubt that Apple is one of the biggest brands in the world and is one of the most successful tech companies that have built their empire on physical products rather than cloud or SaaS.

Although many might say that Apple is starting to lose its prime, it is still one of the most valuable companies in the world with a massive revenue margin on its products.

Big Advantage = China

One of the biggest advantages Apple has over any other tech giant is its footprint in China. It has been one of the only tech giants that have been able to infiltrate not only China but also produce a cult following on their products. This is why over 1/5 of their revenue comes directly from China alone.

https://img.particlenews.com/image.php?url=0rylTd_0XtPMUuI00Source: Source: https://www.visualcapitalist.com/how-tech-giants-make-billions/

One of the significant disadvantages Apple has, however, is its reliance on physical products. The majority of their revenue comes from their iPhone and Mac products, which have been around for decades.

Without proper innovation, they risk losing out to competitions. This is seen from recent results with only a growth rate of 0.51% YOY since March 31, 2020.

  • Apple revenue for the quarter ending March 31, 2020 was $58.313B, a 0.51% increase year-over-year.
  • Apple revenue for the twelve months ending March 31, 2020, was $267.981B, a 3.67% increase year-over-year.
  • Apple’s annual revenue for 2019 was $260.174B, a 2.04% decline from 2018.
  • Apple’s annual revenue for 2018 was $265.595B, a 15.86% increase from 2017.

Although they are innovating as seen within their push into the financial services market, this space is already quite crowded, and they will still be relying on customers who are using Apple products.

They are again, however, doing relatively well and have major advantages over other tech giants with footprints in China as well as a relatively diversified portfolio compared to others in the list.

Google (Alphabet)

Google (referring to Google for the sake of simplicity in this article) is known for its search engine but also its innovation in many product areas.

This product is actually how Google makes most of its money (from ads). Google’s advertising revenues represent over 83% of the total company’s total revenue which could cause potential problems down the road, even if the company has been attempting to diversify its portfolio for years.

https://img.particlenews.com/image.php?url=0lki5Q_0XtPMUuI00Source: https://fourweekmba.com/how-does-google-make-money/

Wrong approach to cloud

Even with Google’s giant footprint, it has always been in Amazon’s shadows with cloud. Amazon launched its cloud platform in March 2006 whilst Google only followed a few years later.

They also went for startups and small businesses rather than enterprises.

AWS also decided to be very developer-friendly whilst when Google launched App Engine in 2008, they did not support a number of key developer languages and thus ended up being ‘enterprise unfriendly’.

“We didn’t get the right stepping stone into the cloud,” — Eric Schmidt, Google’s former executive chairman at the Next 2016 conference.

One of the redeeming factors that Google has is Youtube’s growth.

Youtube’s growth rate far exceeds Google’s overall ad revenue which only grew by 16% YOY in 2019. Youtube instead grew at an amazing rate of 36%, hitting 15 Billion in 2019.

Google’s own growth has been steady at around 13.26% from the last quarter but has been decreasing year on year.

In 2020, with digital advertising spending taking a hit, their growth will be even slower.

Here have been their last few years of results:

  • Alphabet revenue for the quarter ending March 31, 2020 was $41.159B, a 13.26% increase year-over-year.
  • Alphabet revenue for the twelve months ending March 31, 2020 was $166.677B, a 17.37% increase year-over-year.
  • Alphabet annual revenue for 2019 was $161.857B, a 18.3% increase from 2018.
  • Alphabet annual revenue for 2018 was $136.819B, a 23.42% increase from 2017.

In my opinion, although Google’s portfolio is weaker than the tech giants listed previously, it is still making great attempts to diversify their portfolio continually. (Google Cloud is still growing at an incredible rate, outpacing Microsoft and Amazon at 52%).

One key factor is their investment into AI and has shown dominance within the industry, with some analysts stating that Google will win the so-called ‘AI Race’.

The second key factor is their dominance in search.

Google is still far bigger than any other search engine in the world, including Baidu. As of April 2020, they still maintain a huge 86% of the world’s market share, effectively being a monopoly in this space. This still positions them as the clear dominant player in the market with no sign of anyone toppling them in years to come and therefore can be something they can still rely on as they build their portfolio out.

Facebook

One of the biggest social networks in the world, Facebook, also owns products like Instagram and Whatsapp to help build them this social media empire.

With that note, Facebook has and will continue to struggle over the next years to come.

https://img.particlenews.com/image.php?url=1saqAQ_0XtPMUuI00Source: https://www.visualcapitalist.com/how-tech-giants-make-billions/

All in on ads

As seen above, Facebook is very reliant on ads on its social network platforms, meaning its revenue portfolio is not as diversified as some of the other tech giants.

Although Google may have a similar issue, they are currently innovating in new areas of tech beyond search engines to help drive revenue growth.

Facebook instead has seen in their yearly revenue growth drop since 2017, and with COVID-19, businesses are spending less on ads, which is Facebook’s sole revenue driver.

  • Facebook revenue for the quarter ending March 31, 2020 was $17.737B, a 17.64% increase year-over-year.
  • Facebook revenue for the twelve months ending March 31, 2020, was $73.357B, a 24.44% increase year-over-year.
  • Facebook’s annual revenue for 2019 was $70.697B, a 26.61% increase from 2018.
  • Facebook’s annual revenue for 2018 was $55.838B, a 37.35% increase from 2017.
  • Facebook’s annual revenue for 2017 was $40.653B, a 47.09% increase from 2016.

Huge Competition

Even if digital advertising slows down, Google still has the advantage of being the clear market leader by a mile. Although Facebook is still the market leader, they are slowing down and being hit by competition.

The highest drop in Facebook’s market share was in the USA recently — from 76% in December 2017 to 52% in December 2018. Facebook is also losing market share to apps like Pinterest and Twitter, and newer apps like Tiktok clouding the market.

Facebook is also in a battle with more local social media applications as well like Line (Japan) and Kakao (Korea).

With all this competition as well as recent government regulations, Facebook faces rough times ahead and there would be no surprise if they will continually drop in growth year on year.

Summary

It’s no doubt that through this data and revenue breakdown, Facebook, although still a stable tech giant, is at risk from not only its competitors but also its undiversified portfolio.

Although it is attempting to do this (such as its stab at gaming), it will be many years before these will contribute to its revenue portfolio.

In my opinion, Facebook is the most likely to crash out first from any of the tech giants on the FAAMG list and even compared to some other tech giants as well.

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Editor at CornerTech and Marketing @richardfliu on Twitter

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