The club of $1 trillion companies is about to gain a fifth member
Posted January 31, 2020 7:10 a.m. EST
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And then there were five. After a blockbuster earnings report, Amazon is poised to reenter the growing club of $1 trillion public companies when US markets open on Friday — joining Apple, Microsoft, Saudi Aramco and Alphabet at the top of the heap.
Amazon's beat: Amazon blew away Wall Street's expectations when it reported earnings for the holiday quarter on Thursday, my CNN Business colleague Clare Duffy reports. The company posted profits of $3.3 billion. Analysts had expected $2 billion. Revenue, meanwhile, jumped 21%.
Big number: A record 150 million people now subscribe to Amazon Prime. That's a positive sign for the company's expensive efforts to roll out one-day shipping in the United States.
Shares are up 8.5% in premarket trading. If that holds, Amazon will jump back above a $1 trillion valuation, a level it first surpassed in 2018.
The spike is a boon for CEO Jeff Bezos, who really needed a good week. Nicholas Hyett, equity analyst at Hargreaves Lansdown, told me that he's impressed with Amazon's commitment to generating cash and adding "more and more spokes" to the wheel, a reference to the company's many revenue streams.
"Every time you look at a new set of Amazon numbers there seems to be something new to get excited about," he said, pointing to growth in Amazon's fledging efforts to sell directly to businesses.
But the stock gain could trigger further conversations about consolidation in the stock market, considering a handful of tech companies now account for roughly a fifth of the S&P 500.
See here: If Amazon shares open up as much as expected, the company could soon approach the same value as Germany's entire benchmark stock index ($1.15 trillion).
Hyett points out that these companies aren't as monolithic as they may seem at first blush. Amazon has the characteristics of a retailer, Google dominates in marketing and Microsoft makes software — all distinct parts of the tech universe, he notes.
Still, it means the US stock market is heavily exposed to a specific type of company: one with a marquee credit rating that is focused on high growth. "Should we have a shift in the ratings environment, that's going to really hurt the whole market, just because of the percentage they contribute," Hyett said.
Ginni Rometty, a favorite of Corporate America, is retiring
It's the end of an era at IBM. CEO Ginni Rometty, who has led the tech giant since 2012, is stepping down in April, the company announced Thursday.
Details, details: Rometty will be succeeded by Arvind Krishna, who is currently senior vice president for cloud and cognitive software. Jim Whitehurst, the Red Hat CEO who many thought would take Rometty's job, will become IBM's president. Rometty will remain executive chairman of IBM until her retirement at the end of the year.
Shares of IBM are up nearly 4% in premarket trading on the news.
No surprise: Rometty, who is 62, was expected to retire soon, since previous IBM chiefs had stepped down around the age of 60, my CNN Business colleague Paul R. La Monica reports. Krishna is 57 and Whitehurst is 52.
But her departure means that the ranks of women who run large companies will grow even smaller. There were only 33 women CEOs in charge of Fortune 500 firms as of last year, including Rometty.
"Even though IBM's stock performance was more volatile than desired by Wall Street, she left a lasting mark on one of the cornerstone American companies," said Tim Hubbard, a professor at Notre Dame's Mendoza College of Business and a former IBM consultant. He called Rometty "one of the most prestigious female CEOs of the past decade."
Investor insight: IBM shares have dropped 26% since Rometty took the helm, even as the broader stock market shot up. Still, she's been applauded for pushing IBM into the lucrative world of cloud computing, particularly through the company's $34 billion acquisition of Red Hat in 2018.
The coronavirus outbreak is now an international emergency
Markets in Europe are falling Friday as the deadly coronavirus continues to spread globally — leading the World Health Organization to declare a public health emergency of international concern.
The latest: At least 213 people are dead and more than 9,700 cases of coronavirus have been confirmed in mainland China. There are now more than 150 confirmed cases of the virus outside mainland China, including six in the United States and two in the United Kingdom.
Investors initially took some comfort in the WHO declaration, since it could help mobilize resources to keep the virus contained. But the situation is clearly volatile.
Oil monitor: Brent crude, the global benchmark for oil prices, rose 0.6% to $58.61 per barrel on Friday. It's still on track for its worst month since May amid concerns about how coronavirus could knock economic growth, and therefore demand.
Caterpillar, Chevron, ExxonMobil, Colgate-Palmolive and Honeywell report results before US markets open.
US personal income and spending data for December arrives at 8:30 a.m. ET.Britain formally leaves the European Union at 6 p.m. ET.
Coming next week: China's stock markets reopen as coronavirus continues to batter the country's economy.