BRAND FINANCE GIFT™ 2021
Microsoft Overtakes Apple to Become World’s Most Intangible Company
- With an intangible asset value of nearly $2 trillion, Microsoft becomes world’s most intangible company, overtaking Apple, Saudi Aramco, and Amazon, as Microsoft Teams keeps global economy running through COVID-19 lockdowns.
- Corporates booming – global intangible value has grown by nearly a quarter over past two years of pandemic, from $61 trillion in 2019 to $74 trillion in 2021
- Over past 25 years, intangibles have seen astronomical growth – increasing 1145% from estimated $6 trillion in 1996. At this historic rate of change, global intangibles could be worth $1 quadrillion by 2050.
- Brand Finance and International Valuation Standards Council call for more comprehensive reporting of intangible asset value to facilitate investor understanding and economic recovery post-COVID
Every year, the Brand Finance Global Intangible Finance Tracker (GIFT™) report ranks the world’s largest companies by intangible asset value.
This year’s number one company in terms of total estimated intangible value is Microsoft (US$1.90 trillion), which has jumped from 4th position in 2020 to overtake Apple (US$1.87 trillion), Saudi Aramco (US$1.64 trillion), and Amazon (US$1.47 trillion). Microsoft Teams has become embedded into business life for global organisations, once again proving the value of Microsoft’s ability to innovate and roll-out at scale. Microsoft is investing heavily in its business suite solutions. Although Apple is the more valuable company by approximately $200 billion, Microsoft is estimated to have more intangible value with its portfolio of brands and business operations.
Intangible assets are identifiable, non-monetary assets without physical substance. Intangible assets can be grouped into three broad categories – rights (including leases, agreements, contracts), relationships (including a trained workforce), and intellectual property (including brands, patents, copyrights).
Intangible assets boom during COVID-19 pandemic
Over the past year in particular, global intangible asset value has grown faster than usual, and at $74 trillion it exceeds pre-pandemic levels by nearly a quarter, having increased 23% compared to $61 trillion in 2019. The COVID-19 pandemic has demonstrated even further the importance of people, innovation, reputation, and brand for businesses all around the world. Intangible assets are now unequivocally a boardroom priority.
Increases through the pandemic were primarily fuelled by the growth of the world’s largest organisations which were resilient to investor uncertainty due to their scale and their focus on technologies which we continued to rely on through lockdowns. This year, growth has been driven by China and the USA, with several industries recovering from the downturn in 2020.
In times of crisis, brands – especially those most valuable and strongest in their categories and markets – become a safe haven for capital. Like gold or fine art during past economic downturns, nowadays well-managed, innovative, and reputable brands are what the global economy turns to in the hour of need. There can be no better evidence for why brands matter than the role they have already played and will continue to play in the post-COVID recovery.
David Haigh, Chairman & CEO, Brand Finance
Global intangible value grows by over 1000% in 25 years
25 years ago – when Brand Finance was established – global intangible assets were worth only an estimated $6 trillion, less than a tenth of the same value today. As of September 2021, global intangible assets are worth over $74 trillion. This is a 1145% growth over 25 years – approximately 11% per annum.
It is a pivotal moment in financial reporting for intangibles. Total estimated intangible value has grown by over 1000% in the past 25 years. At the same rate, total global intangible value could stand at over $1 quadrillion by 2050 (that is $1,000,000,000,000,000). As investors grapple with balancing various issues such as Climate Change and ESG over the coming years, it is essential that the data they need to understand these vast sums is readily available.
Annie Brown, Associate, Brand Finance
Internally generated intangibles should be recognised in financial reports
The majority of intangible assets are not recognised, due to the limitations set by the financial reporting rules, which state that internally generated intangible assets such as brands cannot be disclosed in a company balance sheet.
Investors should not be deprived of this critical information. Intangible assets such as strong, valuable brands and innovative technology can be the differentiators that drive a $2 billion company to $2 trillion in 25 years – as witnessed with Apple. This information vacuum for investors is part of the reason why Brand Finance endeavours to estimate the extent of “undisclosed intangible value” in our GIFT™ study each year.
David Haigh, Chairman & CEO, Brand Finance Plc
To truly aid investors and provide them with useful information, we believe management should be allowed and required to:
- Identify the key intangibles of the entire business – both internally generated and acquired.
- Provide an opinion on the value of those intangibles in the notes to the financial statements.
- Provide an opinion of the overall business value at the reporting date, to help investors to understand whether or not their capital is allocated efficiently.
Despite the importance of intangible assets to the capital markets, only a small percentage are recognised on balance sheets, typically via acquisition from a third-party transaction. The pandemic has further exacerbated the disparity between market values and book values for those industries most reliant on brands, technology, and human capital for value creation. The IVSC supports Brand Finance, and all others, that look to make progress on this most critical issue.
Kevin Prall, Technical Director, International Valuation Standards Council (IVSC)