Square’s Jack Dorsey – Technology’s Best CEO Value

Square’s Jack Dorsey – Technology’s Best CEO Value

Square’s Jack Dorsey – Tech’s Best Value Over Past 14 Months

We dipped into our CEORater database as we regularly do and ran a query to return the Technology stocks with the greatest stock price appreciation over the period January 3rd 2017 through February 23rd 2018.

We then took the Top 20 Technology Companies as measured by stock price appreciation during the period and asked the question: “Which of the 20 Technology CEOs were the best value in terms of CEO Compensation required to generate each percentage point of stock price appreciation?” For example, in the case of Mr. Dorsey at Square (tkr: SQ, Dorsey is also CEO at Twitter tkr: TWTR) who finished first on our list, for every $7 dollars of CEO Compensation the Company generated one percentage point of stock price appreciation.

Second on the list was Take-Two Interactive’s (tkr: TTWO) Strauss Zelnick at $183 of CEO Compensation for every percentage point of stock price appreciation generated. The table below details the Top 20 CEOs. Further, below the table each CEO name is linked to his/her CEORater profile page where additional detail may be found.

Top Value Tech CEOs Pic
Technology CEOs – Best Value Jan 3rd ’17 – Feb 23rd ’18. (Click to Expand View)
  1. Jack Dorsey, SQ
  2. Strauss Zelnick, TTWO
  3. Tobi Lütke, SHOP
  4. Lew Cirne, NEWR
  5. Jack McDonald, UPLD
  6. Michael D. Rumbolz, EVRI
  7. Matt Maloney, GRUB
  8. Guy Sella, SEDG
  9. Valentin P. Gapontsev, IPGP
  10. Martin Plaehn, CTRL
  11. Brian Halligan, HUBS
  12. Chip J. Paucek, TWOU
  13. Jayshree Ullal, ANET
  14. Vlad Shmunis, RNG
  15. Steven W. Streit, GDOT
  16. Kevin M. Sheehan, SGMS
  17. Philippe Courtot, QLYS
  18. Joey Levin, IAC
  19. Jen-Hsun Huang, NVDA
  20. Reed Hastings, NFLX

It’s People! It’s People!

It’s People! It’s People!

Human Capital is Key

“It’s people! Soylent Green is people!” shouted Charlton Heston’s Robert Thorn in 1973’s Soylent Green. Fast forward 45 years and people remain central to the process. Although the process we refer to isn’t recycled human foodstuff but rather the global economy where Intellectual Capital provides economic sustenance and Human Capital is the key ingredient (Intellectual Capital = Human Capital + Structural Capital + Relationship Capital).

Grist for the Mill

It’s only a matter of time before Technology giants begin to reach into public schools in an effort to identify and recruit top-tier talent in an Intellectual Capital-driven global economy.

Technology’s Four Horsemen – Alphabet, Apple, Amazon and Facebook – hired 247,714 net new employees in 2017, up 89% from the previous year’s figure of 131,196. Amazon alone accounted for 91% of 2017’s total and 84% of 2016’s total (this makes sense given the nature of Amazon’s retail-centric, distribution-heavy business model).

Technology companies require an enormous amount of human capital and brainpower. This is especially true of large technology companies that work to define new market opportunities and use cases. Waiting for the U.S. K-12 public education and university systems to produce inadequately trained professionals is both a suboptimal outcome and supply chain bottleneck. Therefore, we expect for companies such as the Four Horsemen to become increasingly aggressive and systematic in their approach to training and recruiting young people.

Technology's Four Horsemen.png
Employee Counts: GOOG, AAPL, AMZN and FB for Years Ended 2015, 2016 and 2017 (click to expand)

We have experienced early green shoots of this phenomenon with Peter Thiel’s Thiel Fellowship a foundation that awards $100,000 grants to high potential young people. Those accepted (104 fellows and alumni, 2,800 application last year), to the two-year program learn how to write code and build companies. Young people skip or step out of college to become Thiel Fellows where in addition to grant proceeds, Fellows receive support from the foundation’s network of entrepreneurs, investors and operators.

Another example comes from my personal experience in China 2006-2011 where a number of the large China-based IT Services companies set up company-owned “universities” to train recent college graduates in an effort to better prepare them for the type of work that they would perform on behalf of clients. My view is that these companies will reach further back into the student supply chain and begin to recruit and train students during their junior high and high school years.

Reduce Time-to-Productivity

A misconception that many have is that an engineer fresh out of college can hit the ground running at optimal efficiency and drive massive value for companies. That’s hardly the case. Universities do a poor job of preparing students for life in the real world. It makes enormous sense for companies to actively invest in the U.S educational system both at the K-12 and university levels. Short-term operating profit margin dilution will pay dividends over the long-term in the form of new differentiated products and services. To ensure a worthwhile outcome it is paramount that companies take a systematic approach to execution. If nothing else Alphabet, Amazon, Apple and Facebook excel in measuring outcomes and re-calibrating where necessary.

No Teachers Required

Given what we have posited it would make sense for the Four Horsemen and others to get involved in public education early in students’ academic careers. Further, it would be logical for companies to seek to influence the academic experience as much as is necessary to maximize the probability of optimal outcomes for both students and companies. Therefore, it is not unreasonable to expect that the Four Horsemen and a few select others will eventually shape student curriculum — particularly in Math and Science. This may range from content creation to teaching methodologies to the act of teaching itself. Teachers’ Unions ought to be concerned. From a technology standpoint it would not be difficult to replace public school teachers nor college professors with machine learning platforms wrapped in friendly AI skins. AmazonGo is already doing this with retail checkout lines. It’s less a question of “how?” and more a question of public will.

Top Tech CEOs: Bezos Is Best as Measured by Total Stock Return

Top Tech CEOs: Bezos Is Best as Measured by Total Stock Return

Bezos is Top Tech CEO with a Total Stock Return of 83,639%

We recently queried our CEORater database to identify the Top Technology CEOs as measured by stock price performance during each CEO’s tenure. Amazon’s Jeff Bezos topped our list by a wide margin. For purposes of this exercise it helped to have been a CEO for an extended period of time. It is also interesting to note that 8 of the Top 10 and 14 of the Top 20 CEOs on our list are Founder CEOs. We define “Founder” CEOs as those CEOs who were present for the first dollar of revenue earned. Additional detail may be found at CEORater.com.  Contact sales@ceorater.com for Excel spreadsheet detail.

Top 20 CEOs TSR
Top Technology CEOs based upon Total Stock Return (“TSR”) as measured during the CEO’s tenure. BP = stock price on CEO start date or IPO date (if not public on CEO start date). EP = stock price on Feb. 16th 2018. Contact sales@ceorater.com for additional detail.
AMZN 1
AMZN’s Jeff Bezos. Click on the image to expand.

NFLX 2

NVDA 3

MCHP 4

ATVI 5

CSGP 6

STMP 7

CRM 8

CHKP 9

ULTI 10

AmazonGo for Healthcare?

AmazonGo for Healthcare?

A New Heavyweight Healthcare Entrant

The recently announced non-profit joint venture between Amazon, J.P Morgan and Berkshire Hathaway was notably scarce on detail. We previously wrote about how Apple is well-positioned to “consumerize” healthcare. The good news is that there is room for others to add value to the healthcare ecosystem.

Trust, Payments & Price Discovery

If we were to fast forward 5-10 years its easy to imagine that Amazon’s contribution to the “NewCo” healthcare joint-venture will borrow heavily from the company’s experience in online retail where three key elements may come into play: trust, price discovery and payments.

1.) Trust: Since its founding Amazon has developed a deep trust with consumers. Consumers trust Amazon to securely store payment-related information, to offer competitive pricing, to provide a wide variety of goods and services and to deliver goods and services in a secure and timely manner.

2.) Price Discovery: Transparent pricing is a key value-added element of Amazon’s platform as it enables consumers to quickly assess value. Further, Amazon has extended the visibility and reach of independent third-party sellers (3rd party sellers generated $32 billion on Amazon in 2017, a 39% increase over 2016), by allowing them to list their businesses.

AMZN 3rd Party Revs
Amazon Third-Party Revenue and Total Revenue

It is the “Price Discovery” category where we believe the NewCo venture can create the most value. It could on-board independent healthcare providers such as neighborhood urgent care centers – forcing them to disclose pricing as a pre-requisite for listing. This would be a “win-win” for providers and consumers. Healthcare providers would benefit from listing their businesses and consumers win by having greater choice and pricing transparency.

NewCo Similarities
NewCo JV could create value in a similar fashion as AMZN’s retail platform

3.) Payments: consumers and businesses have widely adopted and trust Amazon’s payment platform. This technology could easily be leveraged within NewCo’s platform to facilitate payment transactions between interested parties.

AmazonGo for Healthcare?

How far back in the healthcare stack will Amazon/ NewCo participate? The more information Amazon/ NewCo collects about consumers, the more friction can be removed from the process. One example is patient check-in. It is easy to imagine how Amazon/ NewCo could quickly become the industry standard for Electronic Medical Records (“EMRs”) enabling patient check-in to consist of a phone swipe on an electric reader. AmazonGo for healthcare?

Technology Companies Led by Founder CEOs Outperform the Benchmark

Technology Companies Led by Founder CEOs Outperform the Benchmark

Our Hypothesis: Founder CEOs Will Outperform Over the Long-Term

We believe that founder CEOs will generally outperform non-founder peer group CEOs as well as broader benchmarks over the long-term. We believe this to be true both in terms of stock market returns as well as operating performance as measured by traditional financial measures such as Cash ROIC, ROE, ROA and Economic Value Added.

We recently created the CEORater Technology Founder CEO Index in part to help test our hypothesis. Over time we plan to operationalize the index to where investors may use it as an investment vehicle (stay tuned).

Founder CEOs tend to take a long-term view of the companies they created (their children). Where hired CEOs focus on the current quarter and year, many founder CEOs want their respective companies to thrive in perpetuity.

Legacy Matters to Founder CEOs

It’s about legacy for founder CEOs:

  • It’s why Jeff Bezos (AMZN) thinks about 50 year increments as opposed to quarterly increments;
  • It’s why Reed Hastings (NFLX) pushed OTT, original content and international investment when many investors wanted a U.S.-focused DVD distribution company;
  • It’s why Bill Stone (SSNC) has built one of largest FinTech companies during a period when much of the Capital Markets industry has become commoditized.
AMZN
Jeff Bezos, AMZN Founder & CEO
NFLX
Reed Hastings, NFLX Founder & CEO
SSNC
Bill Stone, SSNC Founder & CEO

We reviewed Total Stock Returns over the January 3rd 2017 – February 8th 2018 period:

  • The market cap weighted total stock return for the CEORater Technology Founder CEO Index over the measured period was 55.5%.
  • The market cap weighted total stock return for the S&P 500 Information Technology Index (ticker: S5INFT) was 32.0% over the same period.

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15 Minutes of Fame: The Intersection of User-Generated Video, Social Media and Mobile Devices

15 Minutes of Fame: The Intersection of User-Generated Video, Social Media and Mobile Devices

Everyone Wants Their 15 Minutes of Fame

It’s a primary reason why Instagram “Stories” are so popular. That and the feature’s ease-of-use. Instagram has created an engaging, almost frictionless user experience that enables anyone to vlog their life in a series of micro videos with a 24-hour shelf life – i.e “Stories”. Stories is the platform feature that single-handedly kneecapped Snap before its March 2017 IPO (we reviewed in our piece about CEO overreach). We covered the “Stories” topic in episodes 58 and 67 of our CEORater Podcast.

Snap recently countered by opening its Stories feature to platforms outside of snapchat whereas Instagram remains within Facebook’s walled garden. Were the two platforms equal, Snap’s counter move likely would have provided an advantage. However, the two platforms are not equal. Instagram continues to enjoy the ease-of-use advantage over snapchat (a powerful advantage) and Facebook’s walled garden is an expansive one with 2 billion-plus monthly active users (“MAUs”).

Mobile Devices that Best Leverage Social Media Platforms Will Win

The “Stories” feature matters not only for social media companies but also for mobile phone OEMs as consumers increasingly record and consume mobile video. Therefore, mobile phone camera features, in-phone storage (external storage devices add friction to the user experience) and battery life will increasingly matter.

Here’s a look at four mobile phones across attributes:

Mobile Phone Pic

Platform Cloud Vendors Also Win

Facebook stores Instagram videos. Google stores Snap’s content. Expect cloud service leader AWS (Netflix on AWS) to make its mark as companies that were built on top of AWS roll out video content (Amazon/Open Tube?)

Hollywood “Validation”

The mobile video phenomenon extends beyond user-generated content to professional content. For example, Steven Soderbergh’s forthcoming theatrical feature – “UNSANE” –  was recorded entirely on an iPhone.

We published CEORater Podcast episode 120 subsequent to posting this article.

 

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Alphabet’s Chronicle Gets the Shine While AWS Is The Sleeping CyberSecurity Giant Nobody Talks About

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Chronicle vs. AWS

One of Alphabet’s Moonshot projects was released into the world last week. The company is named Chronicle  – read more about it here. In short, Chronicle is a CyberSecurity company whose value proposition is to sell its machine learning-driven offering to large enterprises. We believe this could be a difficult sale for reasons articulated in our recent podcast episode.

Meanwhile, Amazon’s AWS unit is the company that’s best positioned to deliver a CyberSecurity offering to the market at scale. Why?  Many companies are built on top of AWS (start-ups like CEORater to Netflix) – thus AWS already has the installed customer base. The heavy lifting is done. Offering new turnkey services to the installed customer base is substantially easier than winning new customers.