NASDAQ’s Record Primed for Next Big Idea Companies
by Sunil Pai
On Thursday, April 23, the NASDAQ Composite Index closed at its highest peak (5049.34) since March 10, 2000. Given that technology stocks account for 43% of the Composite Index, this milestone marks an important point in the technology market. It also lends itself to a reflection of what has driven technology growth over the past 15 years. Setting aside questions about whether or not we’re in a bubble, it bares thinking about the changes over the past several years and the fundamental shifts that have created such considerable growth in market value.
As context, let’s look at technology companies in today’s Composite Index. By focusing on the 100 largest companies (based on market capitalization) in this sector, we find that nearly ~25% of these companies weren’t even traded on the public markets at the NASDAQ’s last high water mark! Most notably, Google — which currently holds a $372B market cap — was not a publicly traded company. In fact, Google’s most important milestone at that time was the opening of its first Mountain View office. Google Adwords had not yet been launched, and the search engine was only available in a handful of languages.
Looking at the top ten tech companies in today’s Index, we see that 30% of these companies were not in the public consciousness at the time of the NASDAQ’s last peak. Back in March of 2000, a 15-year-old Mark Zuckerberg had not written a single line of code for ‘the Facebook.’ I imagine that Zuck was more focused on getting his drivers license than creating the platform that would one day make the world more open and connected.
Of the companies that were major players in March 2000, many have made significant leaps forward in revenue. Apple has nearly 38x its quarterly revenue. Yahoo, which was previously hitting $228M in Q1 revenue, today, has surpassed 5x that number. What, if anything, underlies the companies that have managed to enjoy one boom and healthily push through to the next one? These companies have all deeply invested in innovation (either sustaining innovation, or disruptive) that have kept them in the game. Leaders in the early 2000s were radically different companies than the ones we know today. Apple, whose primary revenue driver was desktop Macintosh sales, is now a player in several different product lines. These leaders possessed the ability to reinvent their businesses, drive sustainable growth, and innovate to create tremendous market value.
However, it is important to realize that four of the top five largest companies in today’s NASDAQ Composite were not even in the top 15 in early 2000. The ability to innovate and capitalize on trends in mobile ubiquity, Internet penetration, and beautiful design propelled the rapid growth of new companies.
To demonstrate, if you owned a smartphone in March 2000, it probably looked something like this… and you probably ate lunch by yourself.
Today, mobile advertising revenue composes 73% of Facebook’s total advertising revenue.
Just as Google and Apple were able to replace the hot companies that dominated the NASDAQ in 2000, we believe that the next wave of iconic companies will come from a focus on bold, new ideas. At DFJ, we constantly remind ourselves that disruptive innovation is the heart of our business. So, what will be the most important company in the next 15 years? Next 30 years? If you have a guess — please email me.
I would argue that the winning company does not yet exist. The most powerful wave of change is coming from new entrants. While some companies have been able to retain power from one NASDAQ high to the next, new entrants are winning the bulk of market share. Brand new entrants, such as Facebook, Google, and Baidu, benefitted from being disruptors in the market and capitalized on trends that were, at one point, non-obvious.
Whether in consumer, enterprise, deep technology or emerging spaces such as virtual reality — if you have the next big idea, come pitch us. We’d love to help your company break new records.