3/27/2023 0 Comments Megasync keyAnd so, not being able to acquire a big company isn’t necessarily the worst thing in the world. Many prove to be less profitable than expected, which often leads to big write-downs. Of course, not all acquisitions work out. “Mega-cap tech firms generated remarkably high average annual sales growth of 18% during the past decade… Aggregate sales growth for mega-cap tech is forecast to rise by 8% this year…” “The one characteristic most associated with large cap tech stocks - superior sales growth - has vanished, at least for this year,” Kostin wrote. Kostin notes that it’s “difficult to estimate the role acquisitions in prior years played in driving the sales growth of the major tech firms.”īut the slow-down in acquisitions probably isn’t helping growth. But the volume of acquisitions has trended lower in recent years. These companies continue to acquire a lot of businesses - Microsoft said this year it plans to buy video game giant Activision Blizzard for an eye-popping $68 billion. In a research note published on Friday, Goldman Sachs’ David Kostin noted that the acquisitive tendencies of Apple, Amazon, Microsoft, and Alphabet have “slowed sharply.” Google-parent Alphabet didn’t always own YouTube, a business that generated $7 billion in revenue in Q3. Indeed, this helps to partly explain how the world’s largest tech companies came to be so big. These deals can be particularly lucrative if the acquirer has better resources to scale up an acquisition target while cutting out redundant costs. And so it may effectively be cheaper to acquire a company that has established some success. But developing products comes with lots of costly failures in the same way that many startups fail. Unfortunately, this can be a costly, money-losing endeavor if your R&D department stinks.īut companies with access to financing have another option: acquire growth.Īcquiring a company for its intellectual property will almost always cost more than if you had invented it on your own. Read this and more market news on the go with Yahoo Finance App.Įvery big company would love to invent the next hot good or service that becomes a key driver of sales and earnings growth. Today's newsletter is by Sam Ro, the author of.
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