Market caps are not thinking caps

You may have heard that Google’s market capitalisation recently exceeded Apple’s, making it the most valuable company on Earth. Do you remember where you were? Of course you do – it was like the moon landing. It was huge. Tim Cook was pilloried and Larry Page anointed the spiritual leader of all geekdom.

Except for one thing. Unlike the moon landing, it never happened. Every single one of those Apple v Google stories (and I read a lot of them, though I am prepared to concede I couldn’t have read them all) was wrong. Never, even for a single second, did the value of Google Inc exceed the value of Apple Inc.

A few months ago, Google restructured its business and created a new entity called Alphabet, which acts as a parent company to a lot of other businesses that used to form the complex corporate amalgam called Google.

This allows the search and advertising company called Google, which makes a ton of money, to report its activities separately from the various speculative and less-profitable (or not-at-all-profitable) activities the company likes to do.

This is great for investors, because it allows them to mitigate their risks and decide whether they want to buy stock in solid, dependable Google or invest in speculative things that may or may not pay off. Smart.

The trick is that the stock symbols for Google and Alphabet are very similar. One of them is GOOG and one of them is GOOGL. A few weeks ago, Alphabet reported its earnings for the first time ever. For the first time, investors got to see how much money Google’s core business makes without the drag from the other stuff. And they liked what they saw. The value of Google rose dramatically, pushing up the value of its parent company, Alphabet.

There was further trading after the market had closed, which pushed the value of Alphabet over and above the value of Apple. Note that it was Alphabet – which owns Google – that saw that peak. Google itself never exceeded the value of Apple. What’s more, by the time the market opened the following morning, trading had cooled and Alphabet was back to lower than the market cap of Apple. At time of writing, that remains the case.

(The other point I would parenthetically make is that we’re comparing the value of publicly traded companies here. There are privately held companies and government-owned companies that exceed the value of any publicly traded company several times over, so when people tell you Apple or Google is “the most valuable company in the world” they are wrong wrong Wrongity McWrongington and you should treat them with dismissiveness and scorn.)

So, you may ask, what does all of this mean? Is Apple a better company than Alphabet? Is Larry Page a superior human being to Tim Cook? Should I throw away my iPhone and buy an Android? Is my Mac going to stop working?

You ask a lot of silly questions.

The answer is that it means nothing. Nothing at all. Stock market valuations are based in part on the performance of companies and mostly on hunches and whimsy. Seriously. Plus a recently introduced element of electronic trading whereby sales are triggered automatically by trends, which makes it really fun. And in no way reflective of any reality.

For some reason, though, certain technology companies (not all) have “fans” who follow the market performance of corporations as if they were sporting teams (even if they don’t actually invest in said corporations beyond the purchase of products). It’s odd.

Odder still is that some of these fans make their way into the media and report their breathless commentary about who’s winning and who’s losing as if it were fact. And that’s what happened. One corporation, which owns another corporation, became briefly more valuable than another corporation based on wishfulness. To the vast majority of people, it did not matter a jot.

Go about your business.

Matthew JC Powell is a technology commentator, philosopher and father of two, in no particular order.