

Takeaways From The 100 Largest Public Companies - eladgil
http://blog.eladgil.com/2012/11/takeaways-from-100-largest-public.html

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jmduke
At first blush, considering Microsoft a wholly B2B company seems so naive that
it made me lose faith in the author.

Google, Amazon, Microsoft, and Apple all have B2B SBUs. That doesn't mean
they're necessarily B2B companies.

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eladgil
I actually mention this at the bottom of the post - i.e. "Also, MSFT is a bit
ambiguous as it has both consumer and enterprise revenue."

I think in the end it makes sense to classify Microsoft as B2B as: a. For much
of its history it has been predominantly a B2B company for its products that
got traction (O/S, Windows, Office are used by consumers, but the big $
customers of these products have traditionally been IT companies). With the
exception of XBOX, most of its consumer products have been big money losers.

b. Even today, the majority of Microsoft profits are from enterprise or SMB
sales of its O/S, Windows, and Office products. Its core consumer products
(MSN etc.) are largely money losers. So if you think of MSFT as a _business_ ,
it mainly makes money off of other businesses.

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hkmurakami
Why use Market Cap, which is affected by arbitrary earning multiples that are
swayed by forces outside of the company's control? An analysis based on
revenue or profits seems much more reliable.

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eladgil
I definitely agree that markets are in-efficient in how they price companies
at a given moment. I also think it would be interesting to do the same
analysis with e.g. cash flow the core metric.

However, I do think market cap is a reasonable proxy as factors like growth
(which can strongly impact market cap) have interesting implications for where
an entrepreneur should or should not build a business.

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hkmurakami
For growth, looking at the historical revenues/profits/cashflows would be a
better gauge than market cap. Public companies disclose annual numbers for the
last 4 years in their 10-K statements, and you can look farther back by
looking at historical 10-K statements.

Market cap is a proxy that has too many outside factors and should be eschewed
in favor of more concrete and reliable numbers since they are readily
available.

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eladgil
What I meant is that growth is often factored into market caps (PGE).

I agree with you that a more complex analysis could be done and it would be
more rigorous and it may reveal additional insights.

However, I am guessing the primary takeaways I listed would not change much
with the additional rigor.

Your comments also raise an interesting question - i.e. what are the right
measures by an entrepreneur for the value their company is creating? There are
obvious points of human impact (user base, engagement etc.), but if you are an
entrepreneur, what financial metric should you care about? For example, Jeff
Bezos often point to free cash flow as the big metric Amazon tracks...

