Client Portals

Week 2: Large But Not In Charge, Socially Aware Investing and AP Photography NFTs5 min read

Jan 12, 2022 - Max Osbon ( 7 mins to read)

Briefing: The S&P 500 does not allow unprofitable companies into the index, so we took a look at the current list of the top ten unprofitable US companies. Six of those companies are in the Nasdaq Index. | A recent survey related to corporate leadership showed that the general American public wants better quality jobs and better wages. | Associated Press will begin selling photography NFTs on Monday, Jan 31st.

Largest US Companies Without Earnings

Below is a list of the largest US companies by market cap that are not in the S&P 500 because they are not yet profitable. The S&P 500 requires profitability before inclusion into the index, while the Nasdaq is far more lenient with its requirements. The six companies below in bold are in the Nasdaq index. We kept Atlassian on the list, an Australian software company because it’s included in VTI – the Vanguard US Total Stock Market Fund.

1.  Airbnb, Inc. –  ABNB – 105.3B – Sharing Economy/Future Hospitality

2.  Snowflake Inc. –  SNOW – 94.3B – Big Data

3.  Uber Technologies, Inc. –  UBER – 83.8B – Gig Economy/Future Transportation

4.  Atlassian Corporation Plc –  TEAM – 80.3B – Software Dev Tools/Jira

5.  Rivian Automotive, Inc. –  RIVN – 75.5B – Electric Vehicles

6.  Lucid Group, Inc. –  LCID – 74.9B – Electric Vehicles

7.  Marvell Technology, Inc. –  MRVL – 71.8B – Semiconductors

8.  Snap Inc. –  SNAP – 68.6B – Social Media

9.  Workday, Inc. –  WDAY – 64.3B – HR Software

10.  Palo Alto Networks, Inc. –  PANW – 51.7B – Cybersecurity

One explanation for why the Nasdaq has outperformed the S&P 500 consistently for the past decade is the Nasdaq’s comfort with embracing disruptive not-yet-profitable technology companies. For decades Amazon was unprofitable because they reinvested every available dollar into new business lines. Tesla (still highly controversial) was finally added to the S&P 500 once they posted their first profit and well after most of the stock’s gains.

Unprofitable but growing technology companies are considered “long duration equity,” referring to future potential not yet realized. That makes these companies far more sensitive to shocks like rate rises, lowered guidance, or drops in public confidence in their ability to execute.

Context on each of these companies is important because this list will likely change dramatically over the coming months. In particular, Lucid and Rivian have mostly taken pre-orders and have barely delivered any units. Meanwhile, I’d guess that every company on that list uses Jira(Atlassian) internally to develop their software.

Fair Companies List – Polling the American public on what they want

The famous hedge fund manager Paul Tudor Jones started a non-profit polling business in 2013 to review the public’s rankings of social priorities in the workplace. The factors include perceived fairness for employees, communities, governance, customers and the environment. Based on those priorities, the JUST Capital polling group creates a ranking based on data from each company for each category. You can click through the data hereThe number 1 factor in 2021 was: paying a living wage.

“Pay a living wage” has been #1 on the list for the past six years and has increased by six percentage points in importance in the last year alone. More recently, a record number of workers have left their jobs, citing low pay as the primary driver. We’ve discussed before how the leading technology companies can employ far fewer workers to create much larger businesses. NVidia ranks 3rd on “living wages” but employs only 18,000 people and is worth $750 billion. Furthermore, NVidia pays great wages because they employ some of the world’s best engineers.

It’s also interesting that the environment scores relatively low. It’s the last category on the list, reflecting where the general public’s priorities land. We all agree that protecting the environment is essential, but it’s hard to prioritize the environment when you can’t afford phone bills, wifi, car payments, utility bills and housing.

My initial reaction to this list from an investment perspective is that of course, it’s best to focus on the highest-ranking companies and avoid the lower-ranking ones. However, after reviewing the data, it is apparent that this survey reflects something far more important than corporate ESG rankings. We have a serious lack of well-paying jobs in the US and unfortunately, this trend is getting worse as the adoption of automation and artificial intelligence takes place. This has big political implications as well.

You can read the 2021 report here.

Associated Press NFTs

The Associated Press will begin selling photography NFTs in the next few weeks. Based on all that has happened in crypto over the past few years, it’s not hard to imagine how owning historically significant images will be popular. Trusted brands and trusted sources are essential in the crypto world, and there is no better brand in global news and media than the AP. We don’t know which images will become NFTs, but you can explore the archives of AP’s iconic photos here. Even if you don’t care about NFTs, this is a fantastic collection of images. You can read the press release here, and the drop is on January 31st.

The AP chose to use the Polygon network, a ‘layer 2’ solution, meaning it is built on Ethereum, which reduces extremely high gas fees (transaction fees). Personally, this is one of the first major Polygon NFT projects that I’ve seen, although I’m sure there have been others. While Polygon has been around for a while, most NFTs have not used that solution. I’m not sure why Polygon hasn’t been more popular to date, but perhaps this marks the trend where adoption starts to increase. AP calls Polygon a more environmentally friendly option on their website, which is more or less accurate, and I’m glad to see them highlighting that as a positive feature.

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