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On the basis of assets, this might be the case. Could you expand your argument? Goldman counts about 1T in assets on its books whereas Alphabet claims about 273

by leoh 6y ago

On the basis of assets, this might be the case. Could you expand your argument? Goldman counts about 1T in assets on its books whereas Alphabet claims about 273B, but I'm not quite sure that that all means. And very different than market cap. On the basis of market cap, this is not true (but might not have been your point): * Berkshire: 410B * JP Morgan: 261B * Bank of America: 186B * Wells Fargo: 96B * Citi Group: 87B total: 1.040T * Apple: 1,333B * Alphabet: 1,373B * Amazon: 1,200B * Facebook: 600B * Netflix: 200B total: 4.708T

runawaybottle 6y ago
I guess I was going by book value, where JPmorgan and Citi alone are at about 2 trillion each. I suppose tech is projected to get there soon enough (or not), we’ll see. Market cap is based on share price, so the current share price could be reflecting that companies like Amazon would literally be worth more one day. That doesn’t mean Amazon is worth more than UBS if we straight up sold each company right now. Someone correct me if I’m wrong. So I guess my larger point would be that I personally don’t think something like a Netflix will be as valuable in 20 years (or certainly not attain the projected value), and even come close to sniffing the total worth of companies in other industries. Within perspective, tech is not as big as we are thinking it is (which is fine, it is and will be reasonably big).
- phlo 6y ago
  So there's two numbers at play here: balance sheets and market cap. A company's market cap is its share price multiplied by the number of outstanding shares. Using parent's Netflix example, there are approximately 450m Netflix shares, times a market price of $450, for a market cap of approximately USD 200b. So it's fair to say that Netflix, right now, is worth some $200b. Now the market cap can sometimes be misleading: Say you start Runaway Co and issue 100m shares. Each of these shares is worth what the market is willing to pay for it. If I agree to buy one off of you for $100, then we've just spent $100 to make a $10bn company. That's where the trade volume comes in. Netflix is a publicly traded company. Today, some 7.5m Netflix shares were traded at prices ranging from $443 and $456. Given that volume, you can be relatively sure that the market price accurately reflects the company's current value (as seen by the market). On the other hand, a company's balance sheet is listing its assets and liabilities. That's where the huge numbers come in for banks. Let's say a bank receives $1m of deposits from its customers, and uses that money to fund a $1m mortgage. That bank's balance sheet is now $1m. Of course, that doesn't necessarily mean that the bank is now worth $1m -- all of the $1m in mortgage debt that it is owed is offset by $1m in deposits that it owes to its depositors. Instead, the bank would be valued according to the profit it can generate from this. If it charges 2% for the mortgage and pays 1% interest to its depositors, that leaves 1%, or $10k per year. Valued at 10X profit, that bank might be worth $100k or so, even though its balance sheet lists a far bigger number. Which takes us full circle. As you said, Citi has some 2tn assets on its balance sheet. In 2019, it generated some $75bn in revenue from this, and made a profit of some $20m. At approximately $45 per share, its market cap is right around $95b. Netflix, on the other hand, had about $33b on its balance sheet. Way fewer assets, but also way fewer obligations. In 2019, it generated revenues of about $20bn and some $4bn in profits. Investors appear to believe that there is a lot of growth still ahead, because they value the company at $200b.
  - runawaybottle 6y ago
    Thank you for clearing things up.
  - CuriousSkeptic 6y ago
    Just a nit pick. I think you got the bank assets a bit wrong. The deposits are liabilities to begin with so cant rally fund any mortgages. The mortgage is deposited into the bank as a liability to start with though I guess. It’s just the other way around mortgages begets deposits.

by leoh 6y ago

runawaybottle 6y ago

I guess I was going by book value, where JPmorgan and Citi alone are at about 2 trillion each. I suppose tech is projected to get there soon enough (or not), we’ll see. Market cap is based on share price, so the current share price could be reflecting that companies like Amazon would literally be worth more one day. That doesn’t mean Amazon is worth more than UBS if we straight up sold each company right now. Someone correct me if I’m wrong. So I guess my larger point would be that I personally don’t think something like a Netflix will be as valuable in 20 years (or certainly not attain the projected value), and even come close to sniffing the total worth of companies in other industries. Within perspective, tech is not as big as we are thinking it is (which is fine, it is and will be reasonably big).

phlo 6y ago
So there's two numbers at play here: balance sheets and market cap. A company's market cap is its share price multiplied by the number of outstanding shares. Using parent's Netflix example, there are approximately 450m Netflix shares, times a market price of $450, for a market cap of approximately USD 200b. So it's fair to say that Netflix, right now, is worth some $200b. Now the market cap can sometimes be misleading: Say you start Runaway Co and issue 100m shares. Each of these shares is worth what the market is willing to pay for it. If I agree to buy one off of you for $100, then we've just spent $100 to make a $10bn company. That's where the trade volume comes in. Netflix is a publicly traded company. Today, some 7.5m Netflix shares were traded at prices ranging from $443 and $456. Given that volume, you can be relatively sure that the market price accurately reflects the company's current value (as seen by the market). On the other hand, a company's balance sheet is listing its assets and liabilities. That's where the huge numbers come in for banks. Let's say a bank receives $1m of deposits from its customers, and uses that money to fund a $1m mortgage. That bank's balance sheet is now $1m. Of course, that doesn't necessarily mean that the bank is now worth $1m -- all of the $1m in mortgage debt that it is owed is offset by $1m in deposits that it owes to its depositors. Instead, the bank would be valued according to the profit it can generate from this. If it charges 2% for the mortgage and pays 1% interest to its depositors, that leaves 1%, or $10k per year. Valued at 10X profit, that bank might be worth $100k or so, even though its balance sheet lists a far bigger number. Which takes us full circle. As you said, Citi has some 2tn assets on its balance sheet. In 2019, it generated some $75bn in revenue from this, and made a profit of some $20m. At approximately $45 per share, its market cap is right around $95b. Netflix, on the other hand, had about $33b on its balance sheet. Way fewer assets, but also way fewer obligations. In 2019, it generated revenues of about $20bn and some $4bn in profits. Investors appear to believe that there is a lot of growth still ahead, because they value the company at $200b.
- runawaybottle 6y ago
  Thank you for clearing things up.
- CuriousSkeptic 6y ago
  Just a nit pick. I think you got the bank assets a bit wrong. The deposits are liabilities to begin with so cant rally fund any mortgages. The mortgage is deposited into the bank as a liability to start with though I guess. It’s just the other way around mortgages begets deposits.