The Profit And Revenue Of Tech Giants Analysed
Saying that tech is a growing slice of the world economy would likely be the biggest understatement of the past three decades. From little start-ups that shoot to stardom to industry behemoths who have dominated the market for years, there’s plenty of revenue to be passed around.
However, not all tech companies grow at the same rate, and just being popular or even grossing a lot of revenue doesn’t necessarily mean pulling a profit. So how can you tell how well the tech giants are really doing?
Well, you could start by looking at company quarterly reports. However, if you (1) find terms like “accrued expenses” to be a total snooze-fest and (2) are looking for an easy to grasp, visual comparison, I highly recommend starting with the tech wealth visualization, which allows you to see the rates at which the top companies grow side by side.
Toggle between profit and revenue to see how the landscape changes. Notice, too, how profit takes up a much bigger area of the revenue circle for some companies while it barely registers on others.
Click image to open interactive version (via WorldPay Zinc).
Wonder why that is? Let’s take a deeper look at how the world’s top tech giants build their wealth.
Stop the visualisation at 1 second, and you’ll see Apple making $8,129 in revenue and $1,762 in profit. At one minute, that grows to $325,171 in revenue and $70,466 in profit. That means that a full 21.7% of the money Apple rakes in is translates directly into profit, which is about as good as you can get for a company of its size.
In the last quarter of 2013, 10% of that revenue was spent on operating expenses and only a little more than 2% on Research and Development. For comparison, Microsoft spends as much as 13% of its revenue on R&D, but Steve Jobs always maintained in life that hiring the right people to do your R&D is more important than investing deeply in R&D itself.
That, however, is not to devalue the importance of R&D to the company, as the former CEO also equated acquisitions to an inability to innovate; as such you can see how little of the company’s revenue is spent on acquisitions, and when they do happen, they’re mostly concentrated in the company’s core capabilities of software and hardware.
Perhaps it’s this focus that still has Apple out earning its competitors. However, it may also be at the heart of its post-iPhone 5 troubles, which included an inability to ship its product quickly enough to meet demand, a host of executive shakeups and a big dip in revenue from a height of almost $1,000 per share to $700 per share in the fall of 2013 (still far out earning its competitors).
Whether this is due simply to an evening out having reached its cap or a need to devote more energy to R&D like Microsoft and Google is something time and the markets will tell.
While not quite as profitable as Apple, Samsung is also a force to be reckoned with. In one second, the company pulls in $10,225 in revenue and $1,359 in profit. By one minute, that’s up to $408,997 in revenue and $54,368 in profit, meaning that roughly 13.3% of its revenue becomes profit. Notably, the company’s strength can largely be attributed to its Android smartphone, which may also be at the heart of Apple’s recent (relative) downturn.
However, making their Android phones into a viable competitor has required not only a lot of R&D but also a huge helping of marketing — something you can see in the infographic, as the revenue circle is slightly larger than that of Apple’s while the profit bubble is slightly smaller. In fact, in 2012, Samsung grew its advertising budget by a whopping 58% for a total of $14 billion in spending.
This is only likely to continue as Samsung attempts a similar takeover of the tablet category, so it’s safe to assume the ratio between revenue and profit will continue to grow in the same proportion and at similar rates.
Amazon’s profit and growth models stand in stark contrast to those we’ve explored so far. In 1 second, Amazon brings in $3,541 in revenue but makes a paltry $35 in profit; at one minute, that’s $151,651 and $1,417, respectively, for a profit accounting for only .9% of revenue. That’s right — .9%. Kind of different than Apple’s 21.7% profit, right?
That, however, shouldn’t come as a surprise given the way CEO Jeff Bezos has grown the company from the beginning. It’s no small feat, after all, to convert a book distribution company into the “everything store,” and in so doing, defining just what eCommerce can and should be. Historically, this has meant devouring its competitors (take a look at its acquisition history and you’ll almost exclusively see other eCommerce sites among the names), repurposing its internally developed software and infrastructure for a side software as a service (SAAS) business (a la Amazon Web Services) and keeping its margins insanely low.
More recently, that’s meant continuing to invest not just in the company itself but also in the future of the entire industry it’s creating by building a massive network of fulfillment centers. Perhaps that’s why Amazon’s stocks posted all-time highs in the fall of 2013, despite losing money in 3 out of 4 quarters that year.
Amazon investors believe the company is positioning itself at the forefront of the future not just of any old business but of business, period. Accordingly, they are more than willing for that little profit circle on the infographic to be only a small percentage of the revenue circle, in hopes of long term dominance and payoff.
Oh Twitter. Twitter, Twitter, Twitter. You may have TwitPic and Lady Gaga, but that profit circle is clearly in the red.
In 1 second, Twitter almost gets there, with revenue of $32 and profit of $-31. By 1 minute, revenue is $1,265 and profit is $-1,228. Not so good, right?
Well, sort of yes, sort of no. It’s true that growth has disappointed expectations. While the company did double its revenue in the first half of 2013, that number was widely expected to mb on the order of $600 to $800 million, but was instead just $500 million. However, this shortfall wouldn’t have happened if the company hadn’t purchased a coding company called Crashlytics — the kind of company that in the long term will go a long way towards making Twitter profitable.
Also on the encouraging front, Twitter has seen an increase in advertising revenue from its mobile users, and as I’m sure we’ve all heard a million times by now, mobile is the place to be. (Thus why Facebook was willing to pay so much for WhatsApp, the mobile messaging app).
Still, Twitter is no Amazon. While it may be greatly influential in reshaping the social media industry, the direct and multifaceted potential methods for generating revenue aren’t nearly as great. While continued investment is likely to turn Twitter profitable (again, Facebook’s ability to turn a growing user base into dollar signs is proof that it can happen for social media), it’s unlikely to be on the order of magnitude as the eCommerce giant.
Tech is clearly a health sector, with several different routes towards profitability. It is shortsighted to judge the lower profit percentage of companies with newer products or business models as being of lower quality in the long term.
It seems unwise as well to judge R&D investments and acquisition histories as a whole, as companies like Google, Facebook and Apple take different approaches, yet all manage to convert about 20% of their revenue to profit.
And it is, after all, that ratio of profit to revenue rather than the total revenue that matters in the long term.
What About You?
Which tech companies look healthy to you, based on their profit and revenue? Which do you think will stagnate, and which do you think will grow? Let us know in the comments below.
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About the Author
Rosie Scott is a digital content strategist at an online marketing company in London and avid blogger. You can find her and her knitting at The New Craft Society or on Twitter @RosieScott22 where she’s always up for chatting.