How Covid propelled trillion-dollar valuations

“A billion here, a billion there, and pretty soon you’re talking real money,” the late US Senator Everett Dirksen once said, mainly with reference to out-of-control federal spending in America. It was a snarky understatement to emphasise not just wasteful government spending, but also the 
value of a billion dollars, which, expressed numerically, is 1 followed by nine zeroes — as in, US $1,000,000,000. Although the world’s first billion-dollar company (US Steel) announced itself in 1901, and the world’s first billionaire (John Rockefeller of Standard Oil) was minted in 1916, even in the 1950s, when Dirksen was 
said to have made the comment, a billion was big, big bucks.

Today, a billion dollars — or even a million dollars for that matter — is still a lot of money for an individual. There are approximately 2,800 known billionaires — and many unknown — in the world, a list currently led by Tesla’s Elon Musk, with an estimated wealth of $280 billion. But in corporate terms, it is becoming chump change. Companies founded on a whim and prayer, or an app and hope, acquire valuation of a billion dollars in quick time, often based on speculative hope and hype. In an era of easy come-easy go, some endure, many do not. Dubbed Unicorns, a term first popularised by venture capitalist Aileen Lee after the mythical animal to represent the statistical rarity of such successful ventures, they have become a fairly common measure of entrepreneurial fizz.

In 2013, when the term was first used to describe startups that scaled up quickly to a billion dollars, there were less than 40 unicorns, mainly in the US. Today, there are an estimated 1,000 unicorns across the world, including 300 in China and 100 in India. Some 30 unicorns, including already-famous names such as SpaceX, Instacart, Stripe, and ByteDance, each valued between $10 billion and $100 billion, have been given the name Decacorn. Scaling further up, Decacorns become Hectocorns when they are valued at over $100 billion.

Up until this stage, Unicorns, Decacorns, and Hectocorns are startup companies that are private, venture-backed entities, recognised and evaluated for their potential for growth, and not on their financial performance. Riding on “get big fast” (GBF) strategies, also known as Blitzscaling, these startups try to expand at a high rate through large funding rounds and price cutting to gain an advantage on market share and overrun competitors as quickly as possible. In pursuit of this foothold or market share, many of them don’t make a dime in profit; instead, they burn money to get ahead.

Facebook was the first Decacorn and Hectocorn in history, crossing a $100 billion valuation before it went public (once they go public with an IPO, they no longer qualify for the informal -corn suffix). It was followed by China’s Alibaba. ByteDance, owners of the app TikTok, which is backed by investors such as Sequoia Capital China and Softbank Group among others, is a current Decacorn, valued at over $140 billion — more than the current market cap of storied companies such as AT&T and American Express.

Since Facebook became the first privately-held Decacorn-turned-Hectocorn, a $100 billion-plus privately-held company, an additional 84 Decacorns have been created. Not all have survived, with 33 of them losing their status for various reasons. This leaves 51 companies still straining at the leash to go public, whereupon they enter new terrain. They include names such as India’s Byju’s, currently valued at $21 billion, making it the world’s most valuable education technology startup, and China’s Yuanfudao, also an edtech startup valued at $15.5 billion.

While Unicorns and Decacorns grow through large funding rounds from private venture capital firms and investors to get an early foothold in the marketplace, sitting on top of the pyramid are companies that do go public and scale a stratospheric height of a trillion dollars — companies for which there is still no agreed upon term as yet. The name Pegasus has been suggested for such companies which reach the new valuation pinnacle of $1 trillion (like the unicorn, the pegasus is also a mythical horse, but with wind beneath its wings). Collectively, they are simply known as Big Tech. They are the T company.

The market cap of $ 1 trillion

A trillion is no trifling sum. For starters, it is 1 followed by 12 zeroes — as in $1,000,000,000,000. A trillion dollars is greater than the Gross Domestic Product (GDP) of all but a score of countries. It is greater than the GDP of Switzerland, Sweden and Argentina, each with GDP below one trillion dollars in nominal terms. For that matter, the valuation of Apple, which recently crossed $3 trillion (it has since dropped to about $ 2.65 trillion at the time of writing), nudged the GDP of Great Britain and India, two of the larger economies of the world.

Today, there are around half-a-dozen companies in the world that have a market cap of over $1 trillion. All but Saudi Aramco are US-born and US-based, and each has a tech orientation. As of March 31, 2022, they are led by Apple ($2.85 trillion), followed by Microsoft ($2.31 trillion), Alphabet/ Google ($1.84 trillion), Amazon ($1.65 trillion), and, the most recent addition to the list, Tesla ($1.1 trillion). Couple others have crossed the 1-T mark or nibbled at it and receded — notably PetroChina and Meta/Facebook.

The rise, rise, and rise of US tech companies has also led to growing concerns about ‘Big Tech’ — an analogous recall of market dominance by a few companies in other market sectors such as Big Oil and Big Pharma. For instance, the big five tech stocks, originally dubbed FAAMG (Facebook, Apple, Amazon, Microsoft, and Google) and now TAAMG (with Tesla replacing Facebook, which has lost nearly 30 per cent of its valuation), account for about a quarter of the market capitalisation of the entire 500 companies in Standard&Poor’s 500. This effectively means 1 per cent of the companies in the index account for about 25 per cent of the total market value.

Such market concentration isn’t unusual. In fact, some companies in the past represented an even bigger share of the market. Back in 1932, AT&T accounted for 13 per cent of total US stock market value, more than twice Apple’s approximately 6 per cent share of the current S&P value (about $ 40 trillion). Even further back, in 1928, General Motors represented 8 per cent of the market, and, in 1970, IBM 7 per cent. But there is a big difference in the time and pace of how the modern Big Tech became bellwethers.

While four of the five American companies hit the $1 trillion market cap before the pandemic, what is remarkable is that the onset of Covid-19 — which lowered the boom on many traditional legacy companies — powered Big Tech to even greater heights. For instance, Apple, which hit $1 trillion market cap on August 2, 2018, doubled that in just two years, going up to $2 trillion on August 19, 2020, in the middle of the pandemic. It took even less time to breach $3 trillion (on January 3, 2022) before receding slightly. Similarly, Microsoft went from breaching $1 trillion in June 2019 to surpassing $2 trillion in June 2021, and Google went from scaling 1-T in January 2020 to topping 2-T in November 2021.

So, what gives? How and why did this happen, particularly during a pandemic?