Why Uber Is Now More Attractive Than Goldman Sachs
There is even more evidence that America’s center of power is shifting from Wall Street to Silicon Valley . At least three mid-level bankers have left America’s largest and richest investment bank; Goldman Sachs Group (NYSE: GS), for Uber Technologies, Reuters reported.
The unidentified bankers are apparently experts in technology investment banking. Reuters speculated that the three could be going to Uber to help it go public through an initial public offering, or IPO. Uber is regarded as the biggest and richest tech company that has yet to go public.
Another reason why the Goldman Sachs bankers are migrating to Uber is to help it reinvest its money. Uber could have a lot of cash; the financial media estimates its value at $51 billion, and it has been able to raise $7.4 billion from financing rounds. Uber is investing in a variety of fields, including robotics, much like Alphabet (NASDAQ: GOOG), the company formerly known as Google, does.
Tech Is Where the Money Is
Of course, the real reason why bankers are going to Uber is that tech is where the money is these days. The Goldman Sachs bankers are only the latest group of Wall Street insiders to decamp for Silicon Valley. Reuters noted that Ruth Porat, Morgan Stanley’s (NYSE: MS) former chief financial officer (CFO), now has the same job at Alphabet.
One reason why Porat is at Alphabet is that it has a lot of cash. Morgan Stanley reported having $53.52 billion in cash and short-term investments on September 30, 2015, down from $100.93 billion in September 2014. Alphabet had $72.77 billion in cash and short-term investments on September 30, 2015, up from $62.16 billion in September 2014. Alphabet’s stash of cash actually exceed that of Goldman Sachs, which reported having $65.58 billion in cash and short-term investments on September 30, 2015, up from $54.15 billion in September 2014.
It is easy to see why investment companies need bankers: They are becoming like banks, and they now have more cash than some banks do. This, of course, raises some troubling questions because tech organizations are not regulated like banks are.
Some tech companies, including Google and Apple Inc. (NASDAQ: AAPL), are now offering financial services. Solutions like Apple Pay and Android Pay can be viewed as bank accounts, and Alphabet has experimented with other financial products, such as loans and insurance.
Google Is Now Bigger Than Goldman Sachs and Morgan Stanley Combined
Those questions are only going to grow in the years ahead because more money is accumulating in Silicon Valley. Alphabet’s TTM revenue of $71.76 billion is now more than double that of Morgan Stanley ($35.18 billion) or Goldman Sachs ($34.23 billion). It is actually approaching that of America’s third largest financial institution, Bank of America (NYSE: BAC). BOA reported a TTM revenue of $82.73 billion on September 30, 2015.
We’re likely to see even more migration from Wall Street to Silicon Valley because of the rate at which Alphabet’s revenue is growing. Alphabet (NASDAQ: GOOGL) saw its revenue grow from $63.6 billion in September 2014 to $71.76 billion in September 2014, an increase of $8.16 billion in just a year.
If this keeps up, Alphabet’s revenue could exceed Bank of America’s next year, especially since BOA’s revenues have been shrinking; it reported a TTM revenue of $87.01 billion in September 2014 that fell to $82.73 billion in a year.
Alphabet could soon be bigger than Citigroup (NYSE: C), which reported TTM revenues of $75.46 billion. Its revenue is also closing on that of Wells Fargo (NYSE: WFC), which reported a third quarter TTM revenue of $85.91 billion. Nor is it hard to imagine that Alphabet could someday have larger revenues than America’s largest bank, JPMorgan Chase (NYSE: JPM), which reported a TTM revenue of $92.5 billion on September 30, 2015.
Like Bank of America and Morgan Stanley, Chase is plagued by falling revenues. It reported a TTM revenue of $95.52 billion in September 2014 that fell to $92.5 billion a year later, a decline of $3.2 billion in a year. Not coincidently, Chase is trying to enter technology, or rather the payment solution, segment with its Chase Pay app and an alliance with the Merchant Customer Exchange and CurrentC.
This means that Silicon Valley and Wall Street are slowly coming together in a new convergence of wealth and power that will probably make income inequality far worse. Expect to see many more bankers migrating from Wall Street to Silicon Valley and tech companies like Alphabet to become more like hedge funds. Alphabet has already reorganized itself along the lines of Berkshire Hathaway (NYSE: BRK.B), which operates much like a hedge fund.
Silicon Valley Is the New Wall Street
In the years ahead, expect to see several more super wealthy tech giants that function like investment banks appear. Probable candidates include Facebook (NASDAQ: FB), Uber and PayPal Holdings Inc. (NASDAQ: PYPL). Dark horses include Amazon (NASDAQ: AMZN), Snapchat, Square, SolarCity (NASDAQ: SCTY) and Tesla Motors (NYSE: TSLA). These companies will dominate America’s economy and influence our national life much like the investment banks did in the 20th century.
Silicon Valley could soon become the world’s new financial center, displacing New York. This means it will set the pace for the world’s economy.
One result of this will be that politicians and regulators will increasingly turn their attention to Silicon Valley. That, after all, is where the money and the power is.
If a questionable startup like Uber is now more attractive than Goldman Sachs, America’s center of power is now located in Northern California and not in Lower Manhattan. Expect the new America that the tech gurus create to look little like that which Goldman Sachs and company helped build.
Investors looking for cash need to follow the bankers and move to tech because it is where the money is. Expect the big banks to keep declining over the next decade as tech rises to unheard heights of wealth and power.
Disclosure: your brilliant blogger holds long positions in Paypal and Bank of America.