Market Capitalisation is a tool used to distinguish the net worth of a company. It is the total value of the issued shares of a publicly traded company and can be calculated by multiplying the share price by the outstanding shares. A fascinating point to make is that many companies such as Facebook, Google and Apple have very high brand value in comparison to their revenues. This begs the question; why?
Firstly, it seems appropriate to distinguish their revenues from their Market Capitalisation. The most up-to-date revenues recorded by Facebook are of $1.26 billion but they have a Market Capitalisation of just under $46 Billion, which shows that the amount they are actually making and how much the brand is perceived to be worth is hugely different. Google had revenues of $14.4 billion in Q4 of 2012, however their current Market Capitalisation is $261 billion. Apple achieved revenues of $36 billion whereas they have a Market Capitalisation of $418 billion. Each of these three companies have something distinctly in common; they are all leading the way in the technological market where the possibly for future development and expansion is high due to technological innovation. Therefore, even though Facebook is actually worth 37 times more than they are making, with Google at 19 and Apple 12, it shows that people are wanting to invest in these brands as they believe they will keep growing and make them more money. Ultimately, there is always someone who has the choice of either investment or saving and if these companies are providing potential for a lucrative return, they are going choose that option. Furthermore, it will then cause a knock-on effect, with others choosing to invest in them as well.
On the other side, there are companies such as IBM, Hewlett Packard and Nokia whose revenues and Marketing Capitalisation are at a very similar level. IBM have a Market Capitalisation 2 times that of their revenues, HP have a Market Capitalisation of just 1.2 times that of revenues and Nokia have the same ratio as IBM. These huge companies were all once in the same position as Facebook, Google and Apple so it just shows the shift in brand power. For example, Nokia’s Market Capitalisation has fallen from $150 billion to $14 billion in just 5 years, showing how much the brand has diminished in value and the lack of willing investment into the brand.
For the last decade Microsoft have been valued higher than Google, but finally Google have managed to overturn the power of Microsoft. Ultimately, Microsoft are falling behind and Google are finding new niche’s on the internet and exploiting them. The way technological companies now much run is changing, due to the ever-changing global environment.
Getting there first is everything, which is something Facebook, Apple and Google have all achieved, as did IBM, Nokia and HP, but the way companies now play the market has changed, so it is imperative they adapt. Innovation is the key.