How M & A activity and record stock buybacks have reduced share buying choices and further driven up stock prices

Businesses are bigger than ever. In terms of revenue, 69 of the 100 largest global entities are now corporations, not countries [1].

Some more staggering statistics:

The World’s 10 biggest corporations – a list that includes Walmart, Shell and Apple – have a combined revenue greater than the government revenue of 180 least richest countries combined, in a list which includes Ireland, Indonesia, Colombia, Greece, South Africa and Vietnam.

Revenue, or turnover, gives an idea of the scale of operations behind these giants, but corporations have been eye-wateringly successful at turning this into profit. The 10 most profitable corporations in the US made a collective $226bn in profit in 2015, or $30 for every person on the planet [2].

In the US the top 200 companies (exchange listed and private) account for around 90% of all corporate profits.

For corporations in the UK, the proportion of profits going to shareholders as dividend payments rather than being reinvested in the business, has risen from 10% of profits in the 1970s to 70% today [3].

In 2016, public listed companies consumed 51% of net income in stock buybacks, 35% for dividends, leaving just 14% for all other purposes [3].

In the US, the 500 largest listed corporations spent on average 64% of their profit on buying back shares between September 2014 and September 2016 [4].

In the US, it appears that businesses are using recently approved tax cuts to boost buybacks and enrich shareholders rather than for domestic investment. US companies have announced over $100 billion worth of corporate buybacks already in 2018.

So, are we heading to a monopolistic corporate world?

Well, it appears we are. Corporations are bigger than ever mainly through Mergers and Acquisitions. Even in newer industries like technology there isn’t much competition.

Verisign, Inc., an American company that operates a diverse array of network infrastructure, including two of the Internet’s main root nameservers, the authoritative registry for the .com, .net, and .name generic top-level domains reported a GAAP Operating Margin 60.7% and Non-GAAP Operating Margin 65.3% in Q4. Being a monopoly gives you those margins.

Apple announced a gross margin of 38.4% for the recently announced Q1 quarter results. And Utilities globally run virtual monopolies with record margins.

There are far fewer listed companies globally now then there were 20 years ago. 20 years ago, there were over 8000 stock market listed companies in the US, that number has halved by 2018.

With very little choice, valuations are soaring especially for the very big listed companies. Little wonder the market doesn’t worry about valuations any longer.

[1] www.globaljustice.org.uk/sites/default/files/files/resources/corporations_vs_governments_final.pdf

[2] http://fortune.com/2016/06/08/fortune-500-most-profitable-companies-2016/

[3] www.purposeofcorporation.org/en/news/5009-behind-the-purpose-of-the-corporation-infographic

[4] https://www.factset.com/websitefiles/PDFs/buyback/buyback_9.20.16

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