What is Market Share?

what is market share pie chart

From Verizon to AT&T, to Apple and Amazon—What is Market Share, and How Do you Predict it?

Investors diligently analyze a company’s projected earnings, cash on hand, potential market share, etc., to assess the intrinsic value of a company and to identify those stocks that are trading lower than future earnings. But one of the common questions we get from new investors, is, what is market share?

Apple (AAPL) and Amazon (AMZN), two of Wall Street’s true heavyweights, have long been mainstays of many investors’ portfolios. Even the lay investor knows that, which is why they’re perhaps the two stocks my investing-agnostic friends and family members most frequently ask me about. Specifically, what they ask is: which is the better long-term investment going forward? There’s a lot to like about both companies, of course, but the question is, who has more market share?

That’s a trick question, because while they are both tech companies, and tech investments, are they really competitive? Amazon is arguably the most diversified company in America, having revolutionized the way people shop, launched a video streaming service that rivals Netflix (NFLX), created a profitable cloud computing wing, etc. Apple has become something of a one-trick pony under Tim Cook, churning out a seemingly endless line of iPhones but failing to innovate the way it did under the late Steve Jobs. You can see our Apple vs. Amazon investing debate here.

So then, what is market share? 

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Try comparing companies that compete more directly. Apple is never going to put Amazon out of business, and vice versa. Instead, let’s look at FactSet Research Systems (FDS). It was founded in 1978 and has its main office in Norwalk, Connecticut. The company provides global economic and financial data to investment professionals, such as portfolio managers, analysts and investment bankers. FactSet combines data from hundreds of sources into a single online information library, accessible from numerous devices using a private network.

The network provides a direct, high-speed data link between FactSet’s mainframe computers and the client’s personal computer or network. The system allows users to download, search and analyze data in a variety of formats, including custom-designed reports. FactSet offers data on thousands of companies around the world.

FactSet, because they are in the same industry as them, takes market share from competitors such as Bloomberg, Dow Jones, Morningstar and Thomson-Reuters as they grow. FactSet’s first-class customer service and unique data sets are their biggest advantage.

A more basic comparison could be Verizon (VZ) versus AT&T (T). AT&T is one of America’s two largest telecom providers along with Verizon, with about a 30% share of the U.S. wireless market. The difference between the two companies as a whole is that Verizon hasn’t delved as heavily into other businesses as AT&T. It is more focused on the core wireless business, where it has the biggest market share (40%) and higher profit margins than AT&T.

To summarize the answer to what is market share, imagine a specific market (like the U.S. wireless market) as 100% of a circle, then divide it into its most major companies. Invest in the companies with the largest market share, or those innovating well enough to get there and stay there.

What Kind of Market Share Should You Look For?

There is no specific market share percentage you look for, because it changes all the time. The potential market share of a company should simply be increasing, and projected to grow within the duration of your investment. If you prefer value investing and long-term investing you have a longer period to wait for market share to increase. If you’re a growth investor, you’re not likely going to see large changes in market share over a short period of time.

Do you now understand the answer to, what is market share? Let us know your other questions below.

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This free report aims to give you the confidence to dive right into the stock market.

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