Before the markets opened this morning, the five largest American tech companies were worth a combined $4 trillion dollars. It’s a notable financial landmark, but the group’s collective reaching of the threshold is not their first; we’ve been here before.

Looking back, I can actually draw you a bit of a line through our coverage on the path that Facebook, Alphabet, Microsoft, Apple, and Amazon (the Big Five) have taken to reach a $4 trillion shared market cap, lose it, and now regain it. (A quick word: Our spreadsheet that tracks this sort of thing does round up and down gently, so we’re discussing thresholds here within a billion dollars or two. Let’s not get caught up in the small when we’re discussing the large).

So, here’s a chronology of sorts:

• May 2017: Morning Report: The Hunt For $3 Trillion.ÌýAt this date, the Big 5 were worth just under $3 trillion.
• June 2017: Tech’s 5 Biggest Players Now Worth $3 Trillion. In mid-2017, this felt like a peak of sorts. How wrong that emotion was.
• July 2018: The Big 5 Are Worth $4 Trillion Heading Into Earnings. Roughly a year later, the same set of companies had added a collective trillion dollars to their market cap. At this point, a return to $3 trillion would have been a huge slide in value!
• Later July 2018: Big 5 Slip Under The $4 Trillion Mark As SaaS And Social Tech Stocks Also Sell Off. Quickly, things got choppy.

Things then went south for a bit. As we can see in the of the firms’ shared worth, the downturn for the biggest of tech shops was material in late 2018. Those declines have also been nearly erased:

So, we’re back, just not all the way to the top. (For reference, Wolfram Alpha has the shared market cap of the Big Five at $3.983 trillion, so we’re not rounding much by calling this $4 trillion.)

So what? Let’s talk about it.

Startups

Crunchbase News spends its days thinking about private markets. But there are notable connections between the public and private markets. Mostly, the public markets impact the private markets by determining sentiment around pricing. This happens through changing equity values (giving public market revenue multiple comps to startups), and acquisitions. The latter also providing pricing guidance that the private markets can use to reprice illiquid securities.

Acquisitions can also become more attractive in high-times. Companies that see their public-market value rise have more flexibility to buy other companies; using equity to make deals feels cheaper when your value rises, giving you more money to play with, lowering effective dealmaking costs. So, when the value of the Big Five rise, it lets us know about the health of the public tech market (pretty darn strong), in a way that lets us better understand the private markets.

Sunlit uplands, everyone, it’s 2019.

Illustration: .

The quarterly results of Amazon, Microsoft, and Alphabet were impressive, with each firm bringing in both more revenue and profit than analysts had expected. And, as we explored at the time, the companies managed to come up with their wins in unique fashion. And so it goes this time around as well.

Since then, Facebook and Apple reported their own results, continuing the trend of top- and bottom-line beats from the leading United States-based tech outfits.

The Big 5, as we call them, are now worth not merely $3 trillion, a milestone we marked some time ago, but roughly $3.3 trillion, more than 10 percent higher than that previous high-water mark.

“What is going on?” is a fine question to ask. First, let’s quickly remind ourselves about what the first three-fifths of the Big 5 recently accomplished, and then dive into the results of the last two firms.

These happy days in tech won’t last forever, but in the third quarter of 2017, it was a good time to be an incumbent platform company.

First Three

To briefly review, the first of the Big 5 to report had notable quarters. To keep this short and reasonably sweet, we’ll move in bullet points for now:

• Microsoft’s revenue beat ($24.5 billion over a projected $23.56 billion), and earnings-per-share (EPS) beat ($0.84 over $0.72) came amidst the firm meeting its cloud computing revenue promise ahead of schedule. The company’s amalgamated “Commercial Cloud” run rate hit the $20 billion mark, implying – based on how Redmond tracks the metric – that the various constituencies of that cloud cohort generated at least $1.66 billion in revenue during the last month of the quarter. The firm had previously promised to reach the $20 billion run rate threshold sometime inside the next several quarters. Cloud matters for Microsoft because it’s the company’s route to mostly-predictable recurring revenue, making it the opposite of one-off license sales of Windows operating system.
• Amazon beat expectations with revenue of $43.7 billion (expectations: $42.14 billion) and EPS of $0.52 (expectations: $0.03). This demonstrated two things for the Seattle-based ecommerce-entertainment-cloud consortium: that it is not doomed to slow growth (on a percentage basis), and that it can make money even as it continues to grow. The firm’s year-over-year revenue growth rate accelerated from 29 percent in the year-ago quarter, to 34 percent in its most recent quarter. And that second number was reached from a higher footing. Of course, buying Whole Foods didn’t hurt, but Amazon managed to earn more profit at the same time that it accelerated growth, which in business is a winning competition.
• Alphabet’s $27.8 billion in revenue beat expectations of $27.2 billion, while its EPS came in at $9.57, miles ahead of the expected $8.33. What went so right? In the quarter, Alphabet’s Google unit managed to halt the sequential decline in its per-click revenue. Put more simply, in the third quarter, Google’s cost-per-click went up from the second quarter. It was still down on a year-over-year basis, but for Google, which has reported rising ad clicks and falling click prices for some time, the change was notable. Google sold more ads, and at a price that rose a full percent from the preceding quarter. That’s a sea change.

The path that each firm took to beating expectations was different, but each led to resounding success, at least when it comes to beating expectations. Of course, the Nasdaq Composite didn’t get to over 6,000 by accident, but Big Tech’s initial victory lap even at market highs was almost surprising.

But, it was an open question as to whether Apple and Facebook were positioned to match the previous three’s success.

Last Two

The streak continued. Apple and Facebook both managed to rocket through analyst estimates, capping off a quarter of across-the-board wins for tech’s largest domestic players.

We’ll repeat our prior formatting to save us from having to come up with something more creative:

• Apple , reporting revenue of $52.6 billion, over . Its EPS came in at $2.07 per share, ahead of estimates of $1.87. The firm’s iPhone, iPad, and Mac sales all rose during the quarter, while its Services revenue category reached $8.5 billion in top-line. Heading into the critical holiday quarter with better-than-expected results from the previous quarter and two new phones on the market, Apple seems to be on strong footing. Investors agreed. To that point, Apple is worth $174.67 per share today, putting its market cap (via Google Finance) at $902.2 billion. That’s spitting distance from $1 trillion.
• Finally, Facebook. Facebook, the youngest of the Big 5, reported , down from a year-ago growth pace of 59 percent. Still, its revenue of $10.3 billion beat expectations of $9.84 billion, and Facebook’s EPS of $1.59 was far ahead of the anticipated $1.28 figure. The company also continued to grow both its user base and revenue-per-user during the period. However, Facebook signaled that forthcoming efforts to help prevent the platform from being weaponized by antagonistic nation-states would ding its future profits.

While that final sentence might sound a bit out of place, it underscores something that I think we often forget. Namely how big these companies in fact are: Facebook has nearly 1.4 billion daily active users, Google is the key path to information for much of the world, Amazon wants to take over how you purchase everything, Microsoft is cementing its SaaS products in homes and offices around the globe, and Apple makes so much money that its earnings reports are almost hard to read.

But are the good times for the big shots good for everyone? Perhaps not.

What About Startups?

TechCrunch recently raised the question of “,” arguing that the wave of vibrant startup-led technology change has passed for the time being. Not that it won’t ever come back, of course, but ask yourself if the following declaration doesn’t sound about right:

“[w]e live in a new world now, and it favors the big, not the small. The pendulum has already begun to swing back. Big businesses and executives, rather than startups and entrepreneurs, will own the next decade; today’s graduates are much more likely to work for Mark Zuckerberg than follow in his footsteps.”

The piece details its own set of whys – after “back-to-back massive worldwide hardware revolutions” that “there is no such [new] revolution en route” – but our above work should supplement the argument. The biggest tech companies are only cementing gains and stacking cash when times are good and smaller, disruptive players have the most access to capital that they have had since the DotCom era. And if they can do that when times are good for everyone, what happens when feast turns to famine?

When the bull cycle flips, and it always does, imagine how it may affect the current, rather pleasant status quo. It isn’t too far a stretch to guess that the big companies will be sitting on profitable bottom lines with huge cash reserves when it happens. And they may do so while still-private, still-unprofitable concerns have to deal with waning interest from tech investors.

We’ll check back in after the fourth quarter closes.

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In unison Friday, the reporting firms, Microsoft, Alphabet, and Amazon rallied to fresh highs. Their competitors that round out our collection of the biggest technology firms from the United States, a collective we loosely call the Big 5, also performed strongly on the day. That news broke on Friday that the US economy in the third quarter likely didn’t hurt.

That the biggest tech companies are doing just fine doesn’t shock. The tech industry’s stock market rally has gone on so long by this point that it can be difficult to recall a time when things were different. Indeed, the combined value of the Big 5 — our three recently-reporting firms, plus Apple and Facebook — has since early 2014, when the group was worth a more pedestrian $1.5 trillion.

Now comfortably north of $3 trillion in collective weight, it’s fair to ask why these firms have done so well in recent quarters. There is no correct single answer to a question with that much complexity, but we can take a lesson from each company’s quarterly results as a good starting point for comprehension.

So, in order, we’ll examine Microsoft, Alphabet, and Amazon’s most recent quarterly results, working to understand why they resonated as much as they did with Wall Street, and what we can learn from it.

Microsoft

The pride of Redmond beat analyst expectations in the most recent quarter, posting $24.5 billion in revenue, ahead of an expected $23.56 tally, and earnings per share of $0.84 (adjusted), ahead of expectations of $0.72.

Those figures are impressive on their own, , underscoring that, on an earnings-per-share basis, Microsoft put up its two best quarters since at least the start of its fiscal 2015. Not bad.

But the company managed to do something more than merely beating top- and bottom-line financial expectations in the quarter. In addition, Microsoft quickly met its promised cloud revenue goal several quarters ahead of its self-imposed timeline.

The firm promised to grow its commercial cloud revenue run rate to a $20 billion annual pace by the (which ends with the conclusion of the second calendar quarter of 2018). Instead, Microsoft crossed the mark in its most recent quarter, the first of its fiscal 2018. So three quarters early.

And that implies that by the end of its fiscal 2018, Microsoft’s commercial cloud revenue collective will be far above the $20 billion run rate mark. It could even be large enough for Microsoft to break out revenue from Azure, its cloud computing platform that competes with AWS, as its own line item. After all, if Surface has to report its own numbers, why not Azure?

Regardless, Microsoft’s market cloud-future continues to come into focus. The firm’s various fuckups — the recent, final days of Windows Phone have been testament to the fact that not all bets bear out, even when they are purchased for billions — aside, its cloud wagers are paying out. Office 365 traditional office, Azure is growing quickly, and the collected enterprise-facing cloud services that Redmond sells are doing $5 billion a quarter at current tip.

If you were a market observer concerned that Microsoft might miss cloud as it missed mobile a few times, the company now has material counterarguments at the ready.

All that and a short-term revenue and profit beat means that Microsoft shareholders are enjoying a nice price jump today.

The big get bigger. And cloudier.

Amazon

Amazon’s quarter , managing to grow its revenue 34 percent year-over-year to $43.7 billion. Analysts had expected a far-slimmer $42.14 billion in top line. The firm’s profit also beat expectations, with the firm managing $0.52 per share when the markets had expected $0.03.

Confused about how the street could have been so far off? That’s Amazon for you.

Shares in the company didn’t merely rally, however, after the beat. They soared, closing the week’s trading today . That’s a staggering result for a company worth hundreds of billions of dollars — each percent they gain is billions of dollars in value created, after all.

So what could have driven the company’s massive gain in value? It seems possible that the firm’s re-acceleration of revenue growth while beating on profits could be the secret sauce that investors fancy. Indeed, looking back to Amazon’s year-ago third quarter, the firm :

Net sales increased 29% to $32.7 billion in the third quarter, compared with $25.4 billion in third quarter 2015.

This year, the firm grew at a faster pace, namely 34 percent, which is a dramatic improvement as the firm increased its ±è±ð°ù³¦±ð²Ô³Ù²¹²µ±ðÌýgains from a larger base this year, making the result doubly impressive.

So, yes, Amazon managed to beat expectations in the most-recent quarter, but its ability to run faster at this age seems to have impressed Wall Street.

The big get bigger. And faster.

Alphabet

Alphabet, the entity that takes credit for Google’s profit and debits its side-project tab against the same accounts, had a great quarter. The firm posted revenue of $27.8 billion, ahead of an expected $27.2 billion tally, and earnings per share of $9.57, far ahead of an anticipated $8.33 per-share figure.

Shares of Alphabet rallied today, following the news, pushing the value of Alphabet shares over the $1,000 mark. What caused that 5 percent bump? Was it merely a beat on top and bottom lines?

No, it doesn’t look like it. To explain what is going on at Alphabet, Matthew Lynley, my co-host on Equity, from the Alphabet earnings:

Google’s cost-per-click — a metric that helps define how valuable its ads are — grew 1% quarter-over-quarter this year. While still down 18% year-over-year, that tiny nudge forward is likely going to be a big positive signal for Google as it looks to show that its advertising business won’t be challenged by other platforms and it is still going to remain a critical ad buy even as user behavior shifts to mobile.

Google has done well in the global shift to mobile, but the impact on its cost per click, or CPC, was chronic. Each quarter, Google would sell more ads, and see the revenue per ad it could earn fall, on average. And on the company grew. But this time, Google sold more ads, and they were worth more on an average, per-ad basis.

A change in the winds, perhaps, and one that could tell investors that the era when each quarter Google had to make up more ground selling ads than it lost in seeing their average value fall could be over. And if it is, the firm could be in good shape to keep growing at a healthy clip.

And since Alphabet remains more than majority-Google from a revenue perspective, what is good for the Google is good for the gander named Alphabet.

And the big get bigger. And more profitable on a per-click basis.

—

That is a bit of what went down yesterday. We skipped so very much. Things like Surface at Microsoft, AWS and Whole Foods at Amazon, and Other Bets at Google. But sometimes you have to excise to march, and we’ve come full circle.

What will be fun to watch will be if Facebook and Apple can mange strong results as well. If all of the Big 5 pull that off then the tech cycle must have at least another turn left in it.

Among the Big 5, here’s how they fell in order:

1. Facebook shed 4.5 percent of its value.
2. Amazon was down 1.6 percent.
3. Microsoft fell by 1.5 percent.
4. Apple was off 0.88 percent.
5. Alphabet lost 0.81 percent of its value.

The tremor at the top of the stack was , reporting that the selloff had caused “worries that the top-performing sector [tech] is falling out of favor as investors look elsewhere for cheaper opportunities.”

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Reuters , noting that tech-centered “S&P 500 information technology index is near its highest since before the 2008 financial crisis.”

So were today’s market declines early cracks in a boom? Perhaps. It’s worth recalling that this is not the first time that technology companies have had a bad day in the market.

Let’s take a quick look.

Trickle Down Valuations

Although sheltered, the VC-backed startup world that we so often discuss is connected to the performance of the public market.

Falling share prices of public tech shops ding private valuations, potentially lower acquisition appetite, and can squeeze the wallets that startups were hoping to sell into.

So when Reuters quotes analysts stating that there is “definitely some panic” in the market leading to fears of “rotation” out of tech stocks, the broader startup ecosystem, and these pages, should take note. That in mind, let’s examine some major signals from the public markets to understand where we are after today’s declines.

Most broadly, the Nasdaq closed at 6,370.59 today, a mere smidge away from its of 6,461.32 set last week.

But that is a picture too zoomed-out for our tastes. So let’s take a quick look at three classes of public tech companies: the biggest tech shops, the cloud crew, and the new entrants.

The Big 5

The gyrations of the biggest tech companies are among the loudest indicators in the market. The five largest tech companies are worth just over $2.9 trillion today, a figure that is notable for no longer starting with a three.

The day that the group burst past the $3 trillion mark felt akin to a new Nasdaq 5,000 moment of sorts — a largely-artificial threshold that only mattered because it was broached during the later-periods of a boom cycle.

The Big 5 are now, on average, off just under 8 percent (unweighted) from their 52-week highs. The same companies are up over 35 percent from their 52-week lows (unweighted).

But as the following chart of the companies’ combined market cap () shows, they are still within spitting distance of record highs:

Something else to note in that chart: the five firms managed to double their value since early 2015.

Takeaway: The Big 5 have undergone a very long and lucrative run. But for the warning bells to ring true, the Big 5 need to shed more than a few points of value. For now, the market is as it was.

The Cloud Cohort

Akin to the Big 5, the cloud kids are expensive yet free from injury (if that implies a greater impending correction is your call).

What we can say is that cloud stocks are doing fine in 2017. One particular vital sign of public cloud companies is the . We’ve covered it before, noting that it looked a bit “bubbly” in the process.

However, after that piece, the Cloud Index actually rallied higher before giving some ground. Currently sitting at 4,595, the Index is up 39.9 percent so far this year. It has yet to take any material damage since the early-2016 SaaS crash period.

But the companies that make up the cloud group are far smaller than the Big 5. The combined value of all companies in the Cloud Index is just $262 billion—a combined worth that is smaller than any single member of the Big 5.

Takeaway: The cloud cohort has undergone a very long and lucrative run. But for the warning bells to ring true, the cloud kids need to shed more than a few points of value. For now, the market is as it was.

Recent IPOs

Moving to our smallest companies, how are recent IPOs holding up? It’s a mixed bag.

As Crunchbase News reported in the middle of the Q2 earnings cycle of this year, about a quarter of US-listed tech IPOs were underwater at that point. Based on our own listing of tech IPOs for the year (US-listed, no biotech, etc), that number is now over 30 percent. And when Carvana periodically dips under its IPO price, that percentage creeps higher.

But the weakness among tech’s recent IPOs isn’t wildly new. Snap and Blue Apron’s struggles are well worn. And on the up are Okta, Redfin, Appian, and Alteryx, which isn’t news either.

Takeaway: The crop of recent tech IPOs has had a mixed year. But for the warning bells to ring true, it needs to shed more than a few points of value. For now, the market is as it was.

So What?

All that sums to the point that we should never extrapolate too much from a single data point, such as a day’s trading. But what this sort of moment does do well is highlight fair and material concerns.

The markets shook today, and that shaking brought some material fears from public-market investors out into the open. If those concerns bear out, we could see a stiff change in the value of public tech companies. And you should expect that concern to trickle down into the valuation of startups.

We’ll keep you abreast the public markets on occasion, as always, in case something comes up that will cause some Series C deals to fall apart.

Let’s take a quick run through the Big 5’s earnings reports this morning. To help you get the information you need, we’ll do this in summary.

Briefly, the Big 5 are a group of US-based tech companies that are, domestically, the most valuable. Those companies are, in an order I just made up, Apple, Amazon, Alphabet, Microsoft, and Facebook. Together, the Big 5 recently benchmark.

What makes the companies worth so much? Let’s find out.

•  Revenue was $45.4 billion, ahead of expectations of $44.89 billion. Earnings per share were $1.67, ahead of expectations of $1.57 per share. The company sold 41 million iPhones, largely meeting estimates. Shares rose.
•  Revenue was $37.96 billion, ahead of expectations of $37.18 billion. Earnings per share were $0.40, far below expectations of $1.42 per share. The company would have been in even worse shape for its operationally-profitable AWS cloud computing unit.
•  Revenue was $26.01 billion, ahead of expectations of $25.65 billion. Earnings per share were $5.01, ahead of expectations of $4.49. The company’s Other Bets projects also showed improving margins.
•  Revenue was $24.7 billion (non-GAAP), ahead of expectations of $24.3 billion. Earnings per share were $0.83 (GAAP), ahead of expectations of $0.71 per share (GAAP). The company’s cloud results were critical to its beat.
•  Revenue was $9.32 billion, ahead of expectations of $9.2 billion. Earnings per share were $1.32, ahead of expectations of $1.13. The firm’s growth continues to decelerate as expected, but it’s happening more slowly than analysts expect

Now you are all caught up. Feel better? No? Perhaps it’s time for the weekend!

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