Even those sleeping through modern life and wishing it was still the "good old days" are forced to face the reality that this must be 2014, upon hearing the rather confounding news bite that Facebook, a social media site that many consider nothing more than a recreational annoyance, is currently considered to have greater cash value than that venerable bastion of finance, JP Morgan Chase. I had to read it twice to make sure it was not some kind of early Halloween joke!
It's only a couple of years ago, following the financial crisis/fiasco and its aftershocks, that JP Morgan lost the position of being the biggest US bank to Wells Fargo, based on their respective market value. I doubt that Jamie Dimon liked the idea very much, but given what I said above, well, being second to a Wells Fargo is one thing, and being second to some hoodie-wearing kid CEO and his nerdy gang of tech geeks is quite another. Ouch!
This came about due to Facebook's acquisition of WhatsApp earlier this year for what also appeared erroneous at first or a misplacement of a decimal point; I thought it must have been $1.9B but no, I read it right, and it was in fact a staggering $19B. Unquestionably, and no doubt particularly to those dreaming of the good old days, this just looks like Monopoly money - gone crazy. Having said that, monopoly is the right term, because that's where such value is derived from: Facebook burying MySpace as the place to display a social scrapbook of your life, for example, gave them the monopoly over hundreds of millions of "member" users, and an ostensibly cherished, but occasionally ignored yet attentive target audience. Ditto Twitter, as the place to present your 140 character howls at the moon, where it can be read by nobody, a few hundred, or even a few million, depending on who you are.
Why their WhatsApp was in such demand was not only that it presented Facebook with a golden opportunity to dominate the smartphone messaging world in years to come, but once again, the company brought with it its real currency - some 450 million users (and a coveted database), growing at a rate of 1 million per day. That's one hell of a potential advertising audience, in and of itself. Placing a monetary value on such huge member numbers is far from easy of course, not least due to various social media services agonising over exactly how to monetize their offering, but I think we can just say that if Facebook valued it at around $20B, then it currently stands at around $20B!
Don't get me wrong, there probably is something wrong in a world where a company offering a WiFi text messaging app can be valued that highly, but they have been spectacularly successful at growing their user base for a company that's been around a mere five years and yet has half a billion people using that app. A large part of the business model if you are in social media is dominating the space and being totally user-friendly in the brave new smartphone world and wars, and no one could ever accuse Mark Zuckerberg of a lack of ambition or little desire to dominate. So he bought WhatsApp at basically any price.
Apparently, Facebook jumped ahead of JP Morgan due to their issuance of new shares to fund the acquisition of WhatsApp, and because the markets hadn't dented Facebook stock for any additional dilution, its market value rose. In a recent estimation, Facebook was calculated to be worth $224B compared to around $221B for JP Morgan. I can imagine Mr. Morgan himself rolling in his grave, if not actually causing Team Dimon to begin worrying about meeting an early (financial) grave, themselves! Of course, there was a degree of outrage (old), bemusement (middle age) or amusement (young) depending on the demographic involved, but the facts are the facts are the facts - Facebook is tops!
This development solidifies the stranglehold grip that the tech giants now have over financial markets, with not only Facebook, but additionally, Apple, Microsoft and Google all worth more than the veritable JP Morgan. In fact, if you take the #1 example out of that gang of four, Apple is today worth more than JP Morgan and Wells Fargo combined, and that just about says it all. Although it has been difficult to assess what the real value of some tech companies may be, in various cases they at least offer technologies that Joe Public understands and can play with; unlike extremely complex financial "instruments" such as derivatives and credit default swaps that were at the heart of the mortgage-backed securities crisis (fraud?) that almost toppled the US banking system, period.
Add on top of that the various scandals that came to the surface after the crash, including those where JP Morgan itself was under the investigative spotlight, and you can kind of understand why people might sooner put their money where their mouth truly is - their smartphone (and its manufacturer) - rather than in the hands of an erstwhile financial giant now under investigation by Uncle Sam. JPM has already paid billions in fines arising out of the financial meltdown that began in 2009, and this week they revealed that the Department of Justice has launched a criminal investigation into their practices in foreign exchange business.
One school of thought that's hardly new is that Jamie Dimon, as capable a banker as everyone seems to claim that he is, while being the boss, simply has too much power: that is the problem. For sure, the roles of CEO and Chairman should be split at an institution the size of JPMorgan. It is not in their interest to have one person in control of all of it, who then basically turns around and says it is too much bandwidth for one person to oversee, as his excuse for a monstrous loss in the billions that made the news in 2013. Some heads did finally roll over that repeat performance however, which comforted essentially no one.
Back in 2013, even with 40% of shareholders supporting a split in roles as discussed above, Jamie Dimon got to keep his double job, as both CEO and Chairman. Some were appalled that Dimon should be allowed to wield an unnatural amount of power and control over the financial giant by retaining the titles of both CEO and Chairman of the Board, simultaneously. But it was not shocking to most. Even if it was expected that firebrand Lee R. Raymond (formerly CEO of Exxon Mobil) would have done more to reign Dimon in, and maybe even push for his removal as chairman, so far this has not happened. Again, hardly shocking - it's business as usual at JPM!
Shareholders also voted in approval of Dimon's compensation for the prior year, a "healthy" $23.1M. Cough. But criminal investigations by both the FBI and the Justice Department have kept the heat on and the champagne warm, and it probably doesn't taste quite as sweet as it used to, today. The public's tolerance for high finance shenanigans has waned since 2009, even if the governmental slaps on the wrist seem to be nothing more than actually enabling. It's all about power and money, and the theoretical abuse of the same. Perhaps not quite the "Power, Corruption and Lies" of New Order fame, but for sure there seems to have been a healthy dose of all three in the financial world over the last several years.
So, you know, much as I wouldn't want Mr. Morgan to be literally turning in his grave (none of this is his fault, after all!), there is something highly entertaining if not quite righteous about a Facebook having a greater market cap than a JP Morgan, in 2014. The fact that advertising revenue at Facebook was up almost 65% at $3B for Q3 2014 alone, and that around half of that came from smartphone revenue, well, it seems that monetization is being achieved and the big banks better get off their rear ends and attempt to compete with a company that can get an ad seen by a billion people a day on some piece of technology in their hand on a bus or a train - an inconceivable proposition in the original good old, bad old days of the JP Morgan patriarch.
It is 2014, and social media and technology have revolutionized life (and even love!), work and business. The gang of four are evidence of that, and a messaging app that sold for $20B emphasizes that beyond discussion. It's all about the offering, and how users in the world derive form, function and freedom from that offering, and until the big banks offer something tangible on even a yearly basis, well, I think we will be hearing of them being overtaken by "those bloody kids" on a more regular basis!
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