For stock market investors, this week has brought a return to business as usual when it comes to Big Tech. The combined market value of the leading tech companies hit a new all-time record on Wednesday, finally rising back above the level it reached three months ago, before the coronavirus crisis dented confidence on Wall Street.
Microsoft, Apple, Amazon, Alphabet and Facebook have now seen a cool $1.7tn added to their combined market cap since the low point in March, for a bounce of 43 per cent.
Compare that to the wider US stock market, which has rebounded a more moderate 33 per cent from the trough and is still 12 per cent off its pre-crisis peak.
The stock market isn’t everything, and to have confidence in current stock prices in the face of an economic calamity requires the willing suspension of disbelief. The weight of money looking for a home has had a perverse effect on valuations based on any near-term measure.
But looked at in relative terms, the outperformance points to an important underlying trend. Big Tech’s combined worth has now crept up to 24 per cent of the total value of the S&P 500 index, or three percentage points higher than before the crisis. Wall Street is betting that the companies with the strongest balance sheets — and the digital platforms with the widest reach — will come out ahead, whatever the shape of the post-crisis recovery.
The latest leg of the tech stock rebound reflects the critical role ecommerce has come to assume for many merchants over the past three months. While Apple and Microsoft each came within 3 per cent of their previous records, Amazon and Facebook — which this week announced its latest push into ecommerce — have both hit new highs.
Merchants everywhere are racing to make up for lost sales by boosting their online presence, bringing a boom for a wide range of tech suppliers.
Many are companies that supply the digital tools needed to build an online presence and to reach and engage online customers. They include Twilio, a voice API that customers embed in their own apps to improve communication (its shares are up 49 per cent from before the crisis) and website builder Wix (up 32 per cent). Shopify, which is adding physical warehouses and distribution to its digital platform for retailers, is up 46 per cent. PayPal’s shares have risen 20 per cent, reflecting a boom for online payment companies. Two years ago PayPal was worth about the same as Goldman Sachs: now it is worth three times as much.
None of this detracts from the influence of the Big Tech platforms. Those with the widest reach are the ones best placed to draw in the largest number of customers.
Facebook has dreamt for years of enabling users to transact without leaving its network. With its Shop service announced this week, merchants will be able to embed their existing ecommerce sites into Facebook more easily. For the network, it isn’t so much about stealing ecommerce transaction revenue as about giving merchants more reasons to promote their services on Facebook.
The crisis has given this drive a new impetus, with merchants looking to extend the reach of their virtual storefronts, while Facebook is trying to make up for a sharp drop in its normal advertising business.
All of this presents a real challenge for the politicians and regulators who have set their sights on clipping Big Tech’s wings. The momentum that had built up in Brussels and Washington to limit the power of the Big Tech platforms receded when the crisis hit, but there have been signs of a renewed drive to keep an even more powerful tech sector in check. In the US, recent reports suggest the Department of Justice and a group of states led by Texas are hoping to launch an antitrust case against Google. In Europe, work has restarted on a Digital Services Act that could set the state for new regulation of the tech platforms.
In the current climate, it will be hard to limit the expansion of all forms of digital activity, including commerce. That will be particularly true if the platforms take a non-exclusive stance. Facebook, for one, has opened its network to third-party services rather than forcing customers to transact through its own services. Companies like Shopify and PayPal will be the beneficiaries.
There is, of course, self-interest at work. Facebook has failed at ecommerce before, and it makes sense to draw on others. Powerful online companies have a way of committing themselves to “open ecosystems” like this when they enter a new market, before later moving to supply more of the services themselves and crowding out partners. But for now, there should be many winners.