Big US Stocks’ Q4’20 Fundamentals

Unfortunately, some companies run goofy fiscal quarters offset from calendar ones, making them harder to compare with their peers. This makes no sense with modern automated accounting systems. Adobe and Nike have fiscal quarters ending one month before calendar ones, while Walmart, NVIDIA, and Home Depot report on quarters ending one month after normal. So generally their latest-reported quarters are included.

Percentage changes are left blank if they are misleading or not meaningful, primarily when data shifted from positive to negative or vice versa between Q4’19 to Q4’20. In a quarter where the S&P 500 itself surged 16.3% YoY, its top 25 companies’ results remained incredibly bifurcated. The beloved mega-cap technology stocks continue to enjoy fantastic performances, which the other big US stocks greatly lagged.

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Even among these largest US stocks, the Big Five technology behemoths utterly dominate weighing in at a stunning 22.4% of the entire S&P 500. Together Apple, Microsoft, Amazon, Alphabet, and Facebook had a $7.5t collective market capitalization as Q4 ended. That is bigger than the bottom 359 stocks of the SPX!And the incredible performances of these tech giants continue to reveal why they are so popular.

The four largest each had market caps exceeding $1t exiting last quarter, the elite four-comma club. The Big Five’s total quarterly revenues soared an astounding 28.8% YoY to $365.0b in Q4’20!Quarter after quarter it continues to amaze how companies at such vast scales can manage such incredible top-line growth. Eventually their businesses have to slow, failing to find enough new customers to fuel such big gains.

But the contrast between those Big Five mega-cap techs and the rest of the SPX top 25 is stark. The next-20-largest US companies actually saw their total sales plunge 20.5% YoY to $529.6b last quarter. Part of that is due to the SPX-top-25 mix, with high-flying companies including NVIDIA, PayPal, Adobe, and Netflix soaring into these ranks over the past year. They have far-smaller sales than companies they displaced.

Those included the gigantic oil majors Exxon Mobil and Chevron, as well as mega-bank Wells Fargo. But even accounting for these ranking changes, revenue growth for the rest of the big US companies was generally considerably smaller. Eight of the next-20-largest actually suffered shrinkage, despite that huge liquidity deluge. One subset of these elite companies that really stuck out were the payments processors.

Visa and Mastercard have long been in the SPX-top-25 ranks, despite relatively-small revenues and even profits compared to their peers. With trillions of dollars of freshly-conjured cash floating around, people should’ve been buying lots of stuff. Yet these leading payments processors still saw sales decline 6.1% and 8.7% YoY. That is definitely surprising, with bearish implications about the underlying US economy.

On the other hand, upstart Internet payments processor PayPal saw revenues soar 23.3% YoY in Q4’20. That certainly contributed to it having one of the biggest stock-price gains among large stocks. So maybe more payments are shifting away from the traditional processors. My small business has used PayPal for a couple decades now, and it has served us well. But weakening credit-card activity still bears watching.

The Big Five tech giants dominate on the hard earnings front too, as reported to the SEC under Generally Accepted Accounting Principles. Apple, Microsoft, Amazon, Alphabet, and Facebook collectively earned a mind-boggling $77.9b in profits last quarter, which soared an even-more-amazing 41.2% YoY from Q4’19!Again such growth at their scales is astounding, highlighting the winners-take-most nature of technology.

There is a vast profits gulf between these dominant mega-cap techs and the rest of the SPX top 25. The next-20-largest US companies reported $91.5b of earnings, which edged up just 1.7% YoY. And that is actually way overstated, due to Warren Buffett’s huge investment conglomerate Berkshire Hathaway. It had long been the 6th-largest US company, although the newly-SPX-inducted Tesla just usurped that place.

Buffett himself has long railed against accounting rules that require US companies to flush unrealized investment gains and losses through income statements. So though Berkshire reported huge $35.8b earnings in Q4’20, most of those were due to the surging US stock markets. Although that company’s financial reporting is pretty opaque, backing out investment swings yields real Q4’20 profits of merely $2.5b.

That is less than 1/16th of Berkshire’s GAAP number, a tiny fraction!So excluding that company from the rest of the next-20-largest SPX companies, their total earnings actually shrunk 8.5% YoY to $55.7b. Even though some of this comes from the changing SPX-top-25 component mix, this is troubling. If the biggest-and-best US companies outside of mega-cap techs can’t grow earnings in this environment, when can they?

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