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The State of European Tech 2020

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Investments

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03

Investors

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04

Value Creation

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Builders

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Diversity & Inclusion

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Regulation & Policy

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About

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Resources

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04.3

Public Markets

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The public markets are home to the world's largest and most mature technology companies that have been built over several generations of companies and technology cycles, over many decades.

As a result, they offer important insights to understand the historical rise of technology around the world and, importantly, Europe's position relative to other major global countries and regions.

The total value of global tech companies has soared to nearly $20T ($19.8T), as measured by market capitalisation. The global technology order is dominated by the US ($12.8T), though China's momentous rise in tech means it has produced public tech companies that are now valued in excess of $3.3T. Asia has several other tech powerhouses too, including Taiwan, Korea and Japan that are all home to public tech companies valued at more than $0.5T. There are three European countries that make the Top 10 with the Netherlands ($0.5T), Germany ($0.3T) and the UK ($0.1T).

Global Tech value

$20T
total market capitalisation for global tech companies

Total market cap ($B) of global public tech companies for top 10 country by company HQ

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Put differently, a total of 96% of all value created in the public markets by global tech companies is concentrated in just 10 countries. The US alone accounts for just under two-thirds of the $19.6T of global tech market cap (65%), while China accounts for a further 17%. There are no other countries that exceed a 5% share and just seven countries globally can claim more than a 1% of global tech market cap in the public markets.

Share of total market cap (%) of global public tech companies of top 10 country by company HQ

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Tech Value concentration

96%
of the total market capitalisation of global tech companies is concentrated in just 10 countries

Source:

Europe's tech ecosystem is, of course, comprised of many separate countries, but it does operate with a large degree of interconnection between its human and financial capital markets. Taken together, the total value of public European tech companies exceeds $1.2T, placing Europe at a distant third place behind the US and China with a share equivalent to 6.3% of total global tech market cap.

Total market cap ($B) of global public tech companies by selected major regions

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The Netherlands tops the list of European countries when ranked by the total market cap of public tech companies based on the location of their company headquarters. This is driven by a small number of very large companies, including Prosus, ASML and Adyen. Germany ranks second driven by the scale of companies such as SAP, Infineon, Zalando and Delivery Hero. The top 5 is rounded out by the UK, France and Sweden.

Total public tech market cap ($B) by country of company HQ

Source:

Legend

  • Market cap ($B)
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The scale of public market is typically driven in each country by a small number of large tech companies. In the Netherlands, for example, 80.4% of the total market cap of public Dutch companies is accounted for by the top three companies with a Netherlands HQ. The UK has the most distributed public tech market cap. The top three public UK tech companies account for only 33.8% of total market cap, significantly lower than than other country.

Share of market cap held by top 3 largest public tech companies per country based on location of company HQ

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

In some ways, the public markets reflect the historical development of technology, as well as the potential to build enduring companies that scale ever larger over decades. In fact, it is noteworthy that the largest share of global tech market cap is concentrated in companies founded in the 1980s or even earlier, equivalent to 43.8% of total market cap. The public markets are therefore a lagging indicator when considered in the context of the health of the early-stage technology private markets; 76.9% of total global tech market cap today has been created by companies founded in the pre-dotcom bubble era. By contrast, companies founded in the past 10 years unsurprisingly represent just 6.2% of global tech market cap, though those companies have already generated an astonishing $1.2T of value in the public markets.

Total market cap ($B) created by global public tech companies by company founding decade

Source:
Note:
This does not include $34.9B of total market cap representing companies that had an unclassified founding year, equating to <0.2% of total market cap. S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Public markets: Lagging indicator

44%
of global tech market cap is concentrated in companies founded in the 1980s or even earlier

Source:

In assessing the health of the European tech ecosystem today, it is important to take this time dimension into account when analysing different indicators. One way to switch from a lagging indicator to one that has the potential to serve as a leading indicator of direction of travel is to analyse Europe's share of global public tech market cap using cohorts of companies categorised by their year of founding. If Europe is indeed making forward progress in tech, its share of global public tech market cap should be increasing. The data, sliced in this way, tells a fascinating story. The US is the dominant player across every cohort but has also experienced a clear decline in market share over time. China's rise is also clear to see, but its might as a tech powerhouse dates back as far as the 1990s, much earlier than most might imagine. The European story is most interesting of all. Europe lost its way in tech after the 1980s and seemingly endured a lost decade in the 1990s. But Europe has been fighting back and more recent cohorts show that Europe keeps rising on the global stage.

Share of total market cap (%) created by global public tech companies by company founding decade by selected major regions

Source:

Legend

  • United States
  • China
  • Europe
  • Taiwan
  • South Korea
  • Japan
  • Rest of World
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

To further understand Europe's relative position, it is interesting to examine the scale of tech in more granular categories. The largest single category by global market cap is Online Commerce, having generated companies valued at more than $4T in the public markets. This is followed by Consumer Internet Services ($3.4T), Semiconductors ($3.1T), Tech Hardware ($2.6T) and Application Software ($2.3T).

Total market cap ($B) created by global public tech companies by category

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The regional share of global market cap of public tech companies in these different categories varies quite significantly. The US is the clear leader in every category other than Games & Interactive Entertainment and Internet Advertising & Direct Marketing. China's share is strongest in categories that are shielded from international competition, including Online Commerce and Consumer Internet.

Share of market cap (%) created by global public tech companies by category and selected regions

Source:

Legend

  • United States
  • China
  • Europe
  • Rest of World
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Looking at Europe's share of major tech categories more closely, it is interesting to compare this to the relative size of the category (as a share of total global public tech market cap). Europe's market share in important categories such as Consumer Internet, Tech Hardware and Systems Software is very small. In other large categories, such as Online Commerce and Semiconductors, however, European companies account for a significantly higher share.

Europe share of total category market cap (%) versus category share (%) of total tech market cap

Source:

Legend

  • Category as % of total tech market cap
  • Europe as % of total category market cap
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

It is important, however, not to only look in the rear-view mirror given the lagging nature of public tech market cap in aggregate. As such, it is again helpful to examine the evolution of European market share across cohorts of companies by founding year. This allows interesting trends to emerge, such as Europe's increasing share of value generated by companies in the public markets in Online Commerce and Consumer Internet. It also shows Europe's decline in the Application Software category. Europe was late into Cloud / SaaS, though Europe's new generation of $1B+ private cloud companies should help to boost Europe's market share when they transition into the public markets.

Europe share of total category market cap by founding decade for selected categories

Source:

Legend

  • 1980s & earlier
  • 1990s
  • 2000s
  • 2010s
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

It is not surprising that the US and China are home to the world's largest technology giants. The US now have four tech companies valued in excess of $1T, while China's two largest companies are worth a combined $1.5T, significantly more than the total value of all European public tech companies. Europe's largest public technology company (Prosus, $163B) would not even make the top 10 list for the US, where the entry ticket is $214B. Europe is, however, producing ever larger tech companies and its top 10 are now valued at more than $700B in aggregate.

Top 10 largest public tech companies by market cap ($B) and region

Source:
Note:
S&P Capital IQ Platform data as of date 31 October 2020.

The top 10 largest public tech companies in the US, China and Europe also highlight an interesting point about the relative maturity of local venture capital ecosystems. 80% of the largest US tech companies were backed by venture capitalists in their early days and 90% of China's largest public tech companies were also VC-backed. In Europe, just three of the largest public tech companies were funded by VCs, though this actually represents huge progress. The arrival of Adyen, Spotify and Zalando into the Top 10 most valuable European tech companies is an important indicator that Europe's venture capital ecosystem is maturing and generating outcomes of extraordinary scale. This is important because as recently as 2017, there was not a single VC-backed tech company amongst Europe's largest companies. Going forward, this is only set to increase.

Share of top 10 largest public tech companies by region

Source:

Legend

  • VC-backed
  • Non-VC-backed
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The scale of the tech industry is evident when looking at the sheer number of public tech companies that have generated huge value. It is, of course, remarkable that there are now four $1T+ tech companies, another three companies at >$500B and 22 valued at over $100B. But from the perspective of an early-stage founder or investor, it is perhaps even more astonishing to know that there are 795 public tech companies valued at $1B or more. The possibilities to create huge outcomes with tech are massive.

Total number of public tech companies and total market cap by market cap group

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

$1B+ public tech companies

795
public tech companies are now valued at $1B+

Source:

It is also fascinating to note that the power law distribution of value creation is evident in the public markets, just as it is in the private markets. The top 1% of most valuable global public tech companies account for a combined share of total market cap of 68.9% ($13.5T), while the top 10% of companies account for 93.9% of total value created ($18.4T).

power law

1%
of most valuable global public tech companies account for 69% of total market cap value

Share of total public tech companies versus share of total market cap by market cap group

Source:

Legend

  • Share of companies (%)
  • Share of total market cap (%)
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Europe does not yet have any companies to match the scale of the largest US and Chinese tech giants, but it now has three companies valued at more than $100B (Prosus, ASML and SAP), Adyen in the $50-100B category and a further 18 companies valued at more than $10B, including VC-backed companies, such as Spotify, Zalando, Delivery Hero and Just Eat Takeaway.

Total number of public tech companies by market cap group by selected regions

Source:

Legend

  • United States
  • China
  • Europe
  • Rest of World
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

An important discussion in European tech has centred around the choice of exchange for companies making the transition into the public markets. The prevailing narrative is that European tech companies have eschewed listing at home in order to go public in the US on one of the two main exchanges, the NASDAQ or the NYSE. In that context, it is interesting to examine the top 10 exchanges by total market cap based on the primary listing venue of European tech companies. The NASDAQ and NYSE do indeed feature prominently with both making the top 10 exchanges of choice based on the combined market cap of European tech companies that have listed on different exchanges.

Top 10 exchanges by total European tech public market cap based on primary listing venue of European tech companies

Source:
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The NASDAQ and NYSE together account for a combined 11.1% of total market cap of public European tech companies, but it is clear that European tech companies have, historically, overwhelmingly chosen to list in Europe. 94.4% of public European tech companies are listed on European exchanges and those companies account for a combined 87% of total market cap.

Share of total public European tech market cap (%) and share of total public European tech companies, by region of exchange of primary listing venue

Source:

Legend

  • Share of companies (%)
  • Share of market cap (%)
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

There is, however, a good reason that the issue of 'leakage' of value from Europe onto US exchanges is raised. This is due to the fact that those companies that list on US exchanges are typically larger. The mean market cap of a public European tech company is $1.6B, though the median is far lower at just $49M, due to the volume of small-cap public European tech companies. Those that have chosen to list in the US, by contrast, have a mean market cap of $5.7B and a median market cap of $970M, around 20 times larger than the median public tech company listed on European exchanges.

Mean and median market cap of public European tech companies by region of exchange of primary listing venue

Source:

Legend

  • Mean ($M)
  • Median ($M)
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

So, while just 3.4% of all public European tech companies chose to list in the US, the mix is dramatically different when looking at companies valued at over $1B. The propensity for these companies to list in the US is more than six times higher, with 13.4% of public European tech companies valued at $1B+ choosing to list on US exchanges, versus 1.9% of companies valued at <$1B.

$1B+ public companies

13.4%
of $1B+ European tech companies chose to list in the US

Share of total public European tech companies (%) by market cap by region of exchange

Source:

Legend

  • <$1B market cap
  • $1B+ market cap
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

The debate around the leakage of value out of the European capital markets is also likely exacerbated by the fact that more recent cohorts of European tech companies seem more inclined to list on US exchanges. While just 5.5% of public European tech companies valued over $1B and founded pre-2000 are listed on US exchanges, this is up almost 5x to 25.7% for companies founded after 2000.

Share of total public $1B+ European tech companies (%) by region of exchange and founding decade

Source:

Legend

  • Founded Pre-2000
  • Founded Post-2000
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

Value leakage

5x
more likely for public European tech companies valued over $1B and founded after 2000 to list on US exchanges

Source:

The leakage of large-cap public European tech companies into the US markets is a trend seen across many different European markets. It would appear that large German tech companies have proven to be consistent in choosing local exchanges for their public listing with the exception of Jumia, which chose to list on the NYSE. Other large European tech companies that have chosen the US for their primary listing include Spotify, Farfetch, Criteo and Mimecast.

Number of total public $1B+ European tech companies by company HQ country and region of exchange

Source:

Legend

  • Europe
  • United States
  • Rest of World
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.

There is also a stark trend when looking at the primary listing venue choices of European public tech companies broken down by category and company founding period. The aggregate market cap of companies founded pre-2000 listed on US exchanges was negligible across almost all categories. The cohort of companies founded after 2000, however, has listed a significant share of total market cap on US exchanges in several categories, including Consumer Internet and Semiconductors.

Share of total public European tech market cap (%) listed on US exchanges by category and founding period

Source:

Legend

  • Founded Pre-2000
  • Founded Post-2000
Note:
S&P Capital IQ Platform, as of date 31 October 2020, for illustrative purposes only.