You hear a lot about how Innovation is linked to superior financial performance.   The BIQ Innovation Index 2018 (c) tracks exactly that. Here is the 2018 update to the index first published in 2015 with some surprising results and trends.

BIQ Innovation Index 2018

Shark Tank – Big Tech Leads Innovation

We first warned you about the powerful bite of the FANGs in our 2015 Index.   FANG stood for Facebook, Amazon, Netflix and Google. For 2018 we are adding Microsoft to make FANMG which is not such a cool acronym, but a fair representation of Top Innovators. They have strong combination of Enterprise Value creation, year on year sales growth momentum and a high ROIC respective to their industry peers. 

Shark Tank

Kudos to Microsoft, the only successful large cap company that has achieved a digital transformation at scale. This could have not happened under Gates or Balmer and is testament to the leadership of @satyanadella.  Azure, Cloud migration of Office 365, and strategic M&A Linkedin and GitHub. Please don’t ask me about the Skype experience.

Add to this group the Chinese internet giants Baidu and Alibaba. Both have implemented innovate business models to attack new markets like mobile commerce that is beyond what western companies having today. 

Salesforce also makes the list moving up from Disrupter as the preeminent business software application provider running on the cloud using a rental model SaaS.

A surprise mention for Shark status is Best Buy proving that Americans love their gadgets to play in consumer ecosystems.

Highest EV/EBITDA and EV/Sales Ratios

In 2015 Tesla and Salesforce  reported the highest EBITDA/EV ratio as they continue to disrupt the chosen industries of Electronic Vehicles and Business Software Applications. En 2018 we are seeing an entirely different phenomenon.  In 2018 the top 5 includes platforms from Netflix, Salesforce, Alibaba, Facebook, and Microsoft.

Most Sharks have a technology platform (wide moat = high ROIC) with a subscription based business model with Monthly Recurring Revenues and a huge Annuity of un-booked revenue if Churn is managed well, is now the preeminent model across both Consumer and Business verticals.

Gulp, get some air and read again.

Sharks – 5 Year EV Growth 2018

A company with a technology platform (large moat = high ROIC) with a subscription based business model with Monthly Recurring Revenues and a huge Annuity of un-booked revenue if Churn is managed well, is now the preeminent model across both Consumer and Business verticals.

The Future for Big Tech

As recently as 10 years ago you could still make a case for regulation of Big Oil and 2 of the top 5 Fortune 500 Exxon and Shell. A potential problem for the FANMGs and Big Tech in general is their monopoly power. We are going to have to decide fairly soon whether Facebook, Google, and Amazon are the kinds of natural monopolies that need to be regulated, or whether we allow the status quo to continue, pretending that unfettered monoliths don’t inflict damage on our privacy and democracy.  At biggest risk is Facebook with a one trick pony business model and a leader with lax controls and morals.

In the next post we will analyze the Disruptors, Challengers, Followers and Laggards. Discuss briefly the fortunes of Apple vs. Verizon and Netflix vs. Disney. In the final post we will analyze each vertical covered.