Modern Monopolies Dominate the S&P 500 – and Much More

By Alex Moazed

Tech stocks are in the crosshairs.

With Facebook facing one problem after another and President Trump repeatedly tweeting about Amazon, it’s been a bad week for tech.

If this trend continues, that could be bad news for the economy at large. Modern monopolies Amazon, Apple, Facebook and Google now sit atop the economy. In the last five years alone, since Facebook joined the index in 2013, these stocks have doubled their share of the S&P 500.

Leading the S&P

At the end of Q1 this year, these four modern monopolies had a combined market cap of nearly $3 trillion. Given that the S&P is weighted by market cap, their rapid growth over the last five years means they’re quickly becoming the most important sector in the index.

Collectively, they now make up nearly 11% of the S&P 500. If you include Netflix, which Recode does, they exceeds 11%. But as we’ve written before, Netflix, far smaller than the other four companies and the only one that’s not a platform business, doesn’t really belong.

While the run up of these modern monopolies over the last five years is staggering, in fact it is part of a much longer trend. Going back nearly 30 years, the rise of platform companies, as well as companies with significant platform components, in the S&P 500 has been quickly increasing.

With a number of big platform IPOs likely to happen in the next two years, including Uber and Airbnb, this trend seems likely to continue.

Going Global

This shift toward platforms isn’t only limited to the U.S. either. Internationally, platforms have become an important part of many emerging economies. In China in particular, platforms play a dominant role similar to their counterparts in the U.S. Baidu, Alibaba and Tencent, collectively known as the BATs, have become some of the largest private sector companies in the region.

However, they aren’t alone. While Airbnb and Uber are some of the largest private platform companies in the U.S., China has several comparable platforms of its own.

There’s Meituan, valued at a $30 billion, which is effectively Yelp, Grubhub and Groupon in one. The company is reportedly considering a U.S. IPO sometime in 2018.  Then there’s it’s competitor, Ele.me, which was recently bought by Alibaba for nearly $10 billion.

Next, there’s Didi, Uber’s Chinese competitor. While Uber owns a sizable stake in the company, the price it paid was to effectively admit defeat in the China market, which will likely be one of the world’s largest in the near future. Did is also expanding into other logistics and transportation markets, including bikes and food delivery.

Finally, there’s Toutiao, a popular news app that has surpassed 120 million users and is growing at a staggering rate. The company has become one of the dominant media platforms in China and has started expanding internationally as well. It bought music platform Musical.ly for $800 million. The platform is particularly popular in the U.S. with teens and boasts more than 200 million users.

Tech is Everywhere

These platforms are but a few examples of the tidal wave of platforms that are soon to be dominant players in public markets. They are emblematic of a key shift in our economy. The last decade has belonged to platforms. As our Platform Index shows, since 2008, public platform stocks have grown nearly twice as quickly the Nasdaq, which lumps in some platforms with many linear tech companies.

Platforms are no longer a niche part of the economy. Increasingly, these modern monopolies are becoming synonymous with the economy. Microsoft’s period of solo dominance in the 1990s seems quaint by comparison.

And unlike the last big tech boom in the late 90s, many of these stocks are here to stay. They boast strong profits and solid platform fundamentals.

However, that doesn’t mean they’re immune from a downturn. Unlike last time, the pressure likely won’t come from nonexistent business models and negative gross margins. Instead it may come from regulation.

Facebook has been facing the brunt of regulatory scrutiny, and rightly so, but it’s only the tip of the iceberg. The issue of how governments interact with these modern monopolies will be a central one for the next decade.

Facebook’s own Mark Zuckerberg has even admitted they should face regulation. Apple CEO Tim Cook has also pushed for digital privacy regulation. However, governments are faced with a dilemma.

Since these modern monopolies are such a major part of the S&P 500, a downturn in major platform stocks could cue a major dip for the broader market. While regulation is needed, the short-term consequences could be significant.

Originally appeared on Inc.

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