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Facebook And The Tech Stock Takeover: From A Newborn To $300 Billion In 12 Years

Forbes logo Forbes 05-02-2016 Steve Schaefer, Forbes Staff

Facebook marked its twelfth anniversary Thursday, barely a week after reporting fourth-quarter earnings that bolstered its standing as one of the most valuable companies in the world, part of a group of technology companies that have dominated the market’s attention for the last few years. Things were quite different 12 years ago though.

© (Photo: David Paul Morris/Bloomberg)

In February 2004 Google had not yet gone public, Steve Jobs was three years away from unveiling the iPhone and Facebook’s 2012 IPO wasn’t even a thought in the head of a 19-year-old Harvard University student named Mark Zuckerberg. General Electric was the biggest company in the S&P 500 by market cap at $334 billion, thanks in part to its fast-growing financial unit. Today GE’s market cap is just $290 billion — adjusting for inflation renders the drop even more substantial — and it has shed much of its financial business in the wake of the 2008 crisis.

At least GE is still among the 10 biggest U.S. companies by market cap. Several others have slimmed down so much in the dozen years since Facebook’s founding that they no longer rank anywhere near the top.

Take Citigroup, which is worth less than half what it was in 2004, or American International Group, worth not even a third of its value from 12 years ago and likely to get smaller amid pressure to break up from activist investor Carl Icahn.

Of the 10 biggest companies on Feb. 4, 2004, according to FactSet, Microsoft and Exxon Mobil have maintained their top five rankings (just barely in the case of the latter), while GE has hung on to currently rank eighth. The influx of new companies though illustrates how the technology sector grew up after the dot-com boom and bust, taking on a new leadership role after the financial crisis knocked down the banks.

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Four of the five largest companies by market cap today hail from the technology sector, with Apple leading the way and dueling with Alphabet (Google) for the top spot. Microsoft, which has rediscovered its mojo under CEO Satya Nadella, ranks third, while Facebook is nipping at Exxon’s heels for fourth place at $320 billion.

It’s important to note that market cap alone doesn’t measure the full value of a company. On measures like revenue and profits, many companies outside of technology still outpace businesses like the tech heavyweights that lead the market cap rankings. But the valuations stock market investors are willing to assign to these few tech titans clearly illustrate the perceived value of the growth they offer.

Alphabet, which briefly overtook Apple this week to become the twelfth company to claim the largest full market value in the S&P 500, is worth $514 billion. Apple, which regained its lead, is at $534 billion.

While Microsoft ($413 billion) has managed to stay in the top 10 thanks to a durable profit engine that outweighed growth concerns, the other businesses have seen their rise in the market cap ranks fueled by massive growth spurts over the past 12 years as new products, key acquisitions and competitive advantages sent revenue higher and drew richer multiples from approving investors.

The tenth-biggest market cap today, Amazon.com, has grown from a puny $18 billion in 2004 to more than $250 billion, helping vault Jeff Bezos up the billionaire ranks and rapidly gaining ground on the world’s biggest brick-and-mortar retailer, Wal-Mart Stores.

As impressive as Bezos’ gains have been, Zuckerberg’s climb up the Forbes list of the world’s wealthiest people has been even faster. He debuted on the Forbes Billionaires List with a $1.5 billion net worth in 2008, four years before Facebook went public. Today, his fortune is worth $48.3 billion, behind only the world’s richest man Bill Gates among technology billionaires.

The lofty market values of technology businesses has sparked a series of warnings that the current environment is an expanding tech bubble doomed to end the same way the late 90s one did, with a crash. But unlike the privately-held unicorns of today, or the dot-com disasters of yesteryear, companies like Facebook and Alphabet generate real profits ample enough to fund their current operations and future growth efforts. That doesn’t mean their stocks will defy gravity forever, just that investors can have some degree of confidence there will be an eventual floor under any stock market fall.

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