When it comes to setting the bar high, Apple (NASDAQ:AAPL) is the tech giant to which all other companies are compared.
Everything is going Apple's way
Apple doesn't just have a lot of things going for it -- it seemingly has everything working in its favor. It's the most valuable company on a global basis by market value, and by brand as well according to the latest rankings from research firm BrandZ. It has an extremely loyal customer base that waits on the edge of its seat (and in quarter-mile long lines) for new products to hit Apple stores. It's sitting on more than $200 billion in cash, giving the company untold financial flexibility. And it's arguably the leader in product innovation.
The method to Apple's madness, and its $650 billion-plus market valuation, is that it's both a dominant retailer (it could wind up selling more than 210 million iPhones per year) and, increasingly, a monster platform company, with Apple Pay potentially transforming the way we safeguard our personal financial information and buy goods and services. Tack on the Apple Watch, an Apple Car, Apple TV, Apple Music, and who knows what other interactive gadgets, and you have a pretty good case for why Apple could become the world's first trillion-dollar company.
Could these companies surpass Apple?
But what if Apple isn't the first company to a $1 trillion valuation? It's always possible that Apple could lose its spot as the world's largest company -- look at Microsoft's descent from a valuation of $619 billion in late 1999 to its current valuation of $350 billion. Companies fall from grace all the time for reasons that remain a complete mystery to shareholders until after their emergence.
The big question is this: if not Apple, then what company will reach the $1 trillion pinnacle first? It'd certainly be easy to say Google or Berkshire Hathaway, which have valuations north of $400 billion and $300 billion, respectively, could be the first to hit the mark; but I'm not going to suggest that. Instead, I see three other companies, with valuations currently ranging from the mid-$100 billion range to the mid-$200 billion range, as the most likely candidates to surpass Apple's valuation and reach the vaunted $1 trillion valuation first.
Here they are, in no particular order.
Growth at Facebook, the largest social media network in the world, is just mind-boggling. After eclipsing the 100 million user mark in August 2008, Facebook surpassed the 1 billion user mark just four years and three months later. Just this August it hit 1 billion active users in a single day, and now counts about 1.5 billion total users who log in at least once a month.
What makes Facebook such an intriguing growth story is twofold. First, Facebook has truly become a mobile giant. In June 2015, Facebook had, on average, 844 million daily active users, accounting for about 87% of its total daily active users. It can use these 844 million users as a dangling carrot to advertisers, which, along with its highly focused data on each user, allows it to maintain superior pricing power for ad space. As Internet access expands globally, the presumption is that daily active user growth could expand, further solidifying Facebook's pricing power when it comes to advertising.
Also, Facebook has just hit the tip of the iceberg in terms of figuring out how to monetize its social network platform beyond static ads and videos. It's yet to monetize Messenger, which has more than 700 million users, because it doesn't want to irritate or scare away users. However, monetizing Messenger is certainly in Facebook's future at some point. Additionally, Facebook has yet to do much with WhatsApp or Instagram, although both could lead to substantial revenue streams once monetized.
With sales expected to more than triple from $12.5 billion in 2014 to $38.6 billion in 2018 and Facebook regularly surpassing Wall Street's prognostications, it's not hard to imagine the company commanding a premium valuation for years to come. Perhaps even $1 trillion, in due time.
Gilead Sciences (NASDAQ:GILD)
Gilead actually has the "smallest" market valuation of the three at $155 billion, but it could just as easily see its valuation soar if it can retain and expand its dominance in hepatitis C, and effectively land two additional blockbusters in hepatitis B and nonalcoholic steatohepatitis, or NASH.
As it stands now, hepatitis C is what's made Gilead one of the 30 most valuable publicly listed companies in the United States. Its Food and Drug Administration-approved products, Sovaldi and Harvoni, dramatically improved the quality of life for patients during the treatment process, carrying far fewer side effects and improving treatment convenience, and boosted the success rate of removal of all detectable traces of the disease to 90% or higher in many instances.
Recently released data from four late-stage studies involving its pan-genotype combination of Sovaldi and velpatasvir demonstrated even higher sustained virologic responses in genotypes 2 through 6 than in previous studies. Long story short, Gilead's hold on the HCV market looks solid -- and it could expand even further if it can find a way to treat the millions of patients who carry the disease but aren't aware they have it.
Gilead could really push forward if it's able to find cures for hepatitis B, a disease even more prevalent globally than HCV, and NASH, a disease affecting millions of Americans. Both indications (which it's currently researching) could easily lead to multi-billions in annual sales on top of the $30 billion Gilead is expected to bring in over the coming years. If Gilead can deliver in HBV or NASH, and it garners a premium similar to its blue-chip biotech peers, a $1 trillion valuation may be attainable.
If there's a tortoise among the hares that has a chance to creep above the $1 trillion valuation mark without too many investors taking notice, it's payment processing facilitator Visa.
Visa actually offers its investors incredible growth (potentially double-digit top-line growth) for the foreseeable future, but it could take a decade, or longer, for Visa to see that $1 trillion valuation. According to the chief financial officer of rival MasterCard, 85% of all global transactions are still conducted in cash. This means 85% of the global market is still an unsaturated opportunity for Visa and its merchant network. That's the upside. The downside is that the infrastructure Visa needs to be successful isn't going to pop up overnight in Africa and the Middle East, two regions where it could demonstrate substantial growth in the future.
Also working in Visa's favor is the simple fact that it remains withdrawn from the lending scene. Although select banks, such as Capital One Financial and American Express, act as both payment facilitators and lenders, allowing them to double-dip on profits when the global economy is running on all cylinders, Visa and MasterCard's unwillingness to lend means neither ever has to worry about defaulting or non-performing loans. It makes Visa's growth prospects less lumpy and easier for Wall Street and investors to predict.
Considering the high barrier to entry in the merchant network space and its long-tail growth opportunity, I'd suggest Visa could have the dark horse shot at surpassing the $1 trillion value mark before any other company.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns and recommends Apple, Berkshire Hathaway, Facebook, Gilead Sciences, Google (A shares), Google (C shares), MasterCard, and Visa. The Motley Fool owns shares of Microsoft. It also recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.