So it seems that Alphabet is about to take Apple’s spot for most valuable company in the world. At least, that’s what afterhours trading in Alphabet shares is suggesting, after their earnings report yesterday.
This is where market caps stood at the close of trading yesterday:
In case you’re not aware of it: most listed companies will announce their big news outside of market trading hours. It gives everyone a chance to actually read through the reports before having to make a trade.
To celebrate Alphabet’s big day, a picturebook-style introduction to who they were/are:
And here’s an explanation of what all those titles mean:
Which is really all lead up for me to have a little rant about “market capitalisation” and what it actually means.
Here is how one calculates the value of “the most valuable company in the world”:
- You take the latest share price (in this case, the after hours share price); and
- You multiply it by the number of shares in existence.
In Alphabet/Google’s case:
- The latest “after hours” share price (at the time of writing this) is $791.
- There are about 688 million shares in issue.
- So the “value” of the company is $791 x 688 million = $544 billion.
- Which you can compare to Apple’s $535 billion at close of trade yesterday.
To illustrate how vulnerable this is, let’s say that I’m overcome this morning by a deep desire to invest some savings in Alphabet shares, and I say to my broker: “I have $800 here. Go forth and buy me a share on the after hours trading market. I don’t care about the extra $9 – I must have my share!”
The broker puts through a buy order for 1 share at $800. The transaction takes place. And for a brief moment in time:
- The latest “after hours” share price is $800.
- There are still about 688 million shares in issue
- And thus, the “value” of the company is $800 x 688 million = $550 billion.
My $800 transaction adds $6 billion worth of value for Alphabet.
I’m a real mover and shaker, me. Perhaps I should go ahead and throw that $800 bid out just so that I could say I’d created $6 billion in value for investors across the world. I mean, it’d be a fun time. Particularly if I could capture that on a Yahoo Finance screenshot. Who says that small investors don’t count?
The point is: tracking this kind of thing is a bit meaningless.
But it’s still fun to talk about.
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.
Dylan Smith, CFA (@DylanLee_Smith) February 3, 2016 at 11:55
Big fan of your articles. Great stuff.
Just wanted to highlight a point in regard to this in that after hours volumes on the shares in question is more significant than I think is realised. Granted in comparison to market open hours, volume is markedly lower, but GOOG saw a volume of 72k, GOOGL 93k while AAPL was 1.2mln last night (2 Feb). In total it looks to be about 1.5% and 3.2% of daily volume respectively. Naturally on news days that volume spikes even higher. Also I think it’s worth keeping in mind that it only includes the 4 hours after market close defined as the ‘After Market’, I assume the ‘Pre-market’ volume is equally large.
I still don’t think small investors count for much in after hours trade, medium investors could create a stir. Plus when it comes down to two of the most heavily traded shares in issue, after hours data is certainly more meaningful. (especially given that Alphabet did actually surpass Apple in ‘regular’ trading hours)
Thanks again for the great content. Much appreciated.Reply
Jayson February 3, 2016 at 12:06
Thanks Dylan – I appreciate the comment!
I know that I was being a bit facetious in the article – but I guess that the point that I really wanted to make is that the “world’s most valuable company” really means “the world’s most valuable company in the mind of the institutional investor that paid that last quoted price”.
If someone actually wanted to go and realise that value with a giant chunk of shares, the ‘value’ of the company would go down – but this is purely a result of the trading mechanics, rather than any real change in the so-called ‘value’ of the company itself.
So in summary: it’s really just my veiled excuse to harp on about the philosophy of value 🙂Reply
Dylan Smith, CFA (@DylanLee_Smith) February 3, 2016 at 19:22
Yeah, agreed. It’s really a case of ‘Most Valuable Company’ (in small print if measured by *insert a whole whack of caveats including the fact that trading is technically closed on the share so don’t expect fully efficient price discovery…) Course that’d make for a fairly bland headline.Reply