How does Exxon Mobil make money? the former market capitalization king

Exxon Mobil

Exxon Mobil discussion in my books

I have discussed the company Exxon Mobil (ticker: XOM), relative industry or topics, in my latest two books; including:

In my book “The Rules of Super Growth Stocks Investing“:

  • Section 4-4, p. 297, discussion of commodity

In my book “The Rules of 10 Baggers“:

  • Sections 3-7, pp. 166-167, discussion on the energy industry
  • Sections 6-7, page 323

Company profile

ExxonMobil, with operations around the world, especially in the eastern and southern United States, remains the “dominant” in the oil industry today.

The former market capitalization king

Before Apple (ticker: AAPL) ascended to the market capitalization throne of the US stock market in 2008, Exxon Mobil has always been the market capitalization king of the US stock market, which I mentioned in the previous article “How difficult to be out of the ordinary“. Exxon Mobil, the most valuable U.S. company 10 years ago (please note: the world’s largest market capitalization king at the time was the U.S.-listed PetroChina, ticker: PTR), is re-entering the top 10 after ranking 38th at the end of 2020 . Exxon Mobil now ranks 11th with a market cap of $424 billion, according to the S&P Dow Jones Indices.

Performance and Valuation

Business performance

Year 2021Exxon Mobil PetroChina
Annual revenue and growth rate (million)278,981 +55.18%411,384.6 +38.87%
Annual gross income and growth rate (million)90,045 +59.11%132,860.7 +30.22%
Annual operating income and growth rate (million)26,780 +1818.86%25,996.5 +3907.3%
Annual net income and growth rate (million)23,040 +2026.74%18,048.2 +2518.44%
Gross margin32.28%32.3%
Operating margin9.6%6.32%
Net margin8.26%4.39%

Stock valuation

6/10/2022Exxon Mobil PetroChina
Market capitalization ($ billion)414.878141.573
Share price95.8153.92
Dividend yield3.56%6.37%
Stock performance in past 5 years (S&P 500 was+65.13%)+20.33%-15.21%

Oil is a typical commodity

There is no difference between buying oil from Russia or from Saudi Arabia, buying from ExxonMobil and buying from China’s PetroChina, the only determining factor is the price ─ ─ anything that meet this requirement is commodities.

In the 4-4 subsections of my book “The Rules of Super Growth Stocks Investing”, I spent a lot of time mentioning commodity and the tips that must be paid attention to when investing in commodity. Investors should pay special attention to those tips.

Huge capital expenditure

The energy giant plans to spend between $20 billion and $25 billion a year from 2023 to 2027, and spend $21 billion to $24 billion this year on capital expenditures — one of the highest in the global energy industry. To its credit, Exxon has maintained adequate capital expenditures in a difficult 2020 and is now beginning to benefit from the success of new explorations such as the huge offshore field in Guyana, where it was heavily invested at the time.

Comparison of earning power

Gasoline prices in the U.S. hit a record $5 a gallon, and inflation is over 8%. Exxon is expected to generate about $41 billion in net income in 2022, up from $23 billion last year, this year only due to high oil prices and an oil embargo in Russia.

How does Exxon Mobil compare to the tech giants in terms of profits? Apple is by far the champion. It is expected to earn $100 billion this year, followed by Alphabet (tickers: GOOG and GOOGL) with $73 billion, Microsoft (ticker: MSFT) with $70 billion and JPMorgan (ticker: JPM) with $60 billion.

Risks of investing in Exxon Mobil

Uncertain energy prices

Investors in Exxon Mobil seem to forget that the company lost money in 2020, when energy prices were at historic lows and the stock was a third of what it is today. Everyone forgets that the company is losing money in 2020, and yes, the biggest company selling oil will lose money too.

Will be replaced by green energy

Another risk is that global green energy is in power, and it is an irreversible trend, which is unfavorable in the long run for companies operating in the petrochemical industry, no matter how profitable they are or how large the company is.

Just like the companies selling cigarettes 30 or 40 years ago are almost all the most profitable listed companies in each country, including Altria (ticker: MO) which was once a component of Dow Jones Index. However, after decades of social evolution, the rise of people’s health awareness, and the repeated tightening of laws and regulations in various countries, tobacco companies around the world are still making money, but they are not good targets for long-term investment. It is the consensus of almost all investors.

New sources of revenue are being explored

Extraction of Lithium Metal

Shareholders’ concerns that the company will be replaced by green energy are affecting the long-term trend of the company’s stock price. Of course, ExxonMobil will not sit still.

In May 2023, the company announced its investment in the lithium industry, betting on the vigorous development of electric vehicles and opening up a larger source of revenue for itself.

And in June 2023, ExxonMobil and TETRA(ticker: TTI) reached an agreement with TETRA to jointly develop lithium business. Direct Lithium Extraction (DLE) is being pursued to filter metals from Arkansas brines, but the technology is largely unproven on a commercial scale and is still in its very early stages.

In addition, ExxonMobil has also conducted multiple negotiations with International Battery Metals (International Battery Metals, ticker: IBATF) and energy mining companies on licensing DLE technology to accelerate technology acquisition.

Carbon capture

In July 2023, oil major ExxonMobil agreed to buy CO2 pipeline operator Denbury for $4.9 billion.

Exxon Mobil
credit: wikimedia

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