##Date##01 Sep 2015
With Apple and Google we are looking at the two most powerful and influential companies ever with totally different views of the world and the stakes couldn't be higher. The firm that wins will shape worldwide innovation and technical architecture for generations to come. We could live in a seamlessly staged, beautifully styled echosystem that creates a home for you, or an architecture that focuses on utility and speed which connects all of human thought instantaneously while entering into your home to connect with your technical DNA. Both firms are so far ahead of the curve that they see a straight line.
A stock portfolio is a market of stocks. Each investment carries with it both the risk of that investment and the opportunity risk associated with not having that capital for an alternative investment. With that in mind, let's compare the two largest companies in the world, Apple (AAPL) and Google (GOOGL). First, we'll examine each firm individually, and then take the critical step of comparing them. It turns out each of these steps takes exactly one mouse click to be an expert.
The first step is called a Trade Card™. Enter a symbol, and you get everything.
Apple's colossal success has been achieved through a seamless echosystem that focuses on ease, style, product and marketing. If Apple is the dominant technology leader, a generation of innovation will be bent and shaped around its vision of the world. It will invite you into its wonderful cocoon, create a home for you and shower you with brilliant innovation, style and convenience leaving (nearly) nothing to be desired. Apple understands want better than any company ever and is so far ahead of the curve, that it sees a straight line. It is, in the truest sense of the word, a home.
Apple is a five star company if there ever was one. Apple's revenue (TTM), operating margins, net income (TTM), levered free cash flow (TTM) and R&D expense are all rising. Here's a quick chart of Revenue (TTM) in blue bars vs. Net Income(TTM) in the gold line.
Click Here to Interact With This Image
Revenue (TTM) is up 26% year-over-year and net income is up 31.6% year-over-year.
We must note that fully 50% of all of Apple's revenue growth and 61% of the increase in operating income came from China in the company's current fiscal year. The recent bearish tone surrounding Apple comes for good reason in that the firm is heavily dependent on the iPhone, China may be slowing and has devalued its currency (which makes Apple products more expensive in China) and version one of Apple Watch has not been a success. But version one of products are generally not very well accepted, even the Holy Grail that is the iPhone. All those that point to Apple's heavy reliance on the iPhone, a product now in its seventh generation have a truly valid point, but please don't forget that Apple is aware of this reality as well.
Apple Watch version one was never the bet on this product. It's the next versions that will determine its success, and I'm sorry, but listening to more tech reviews and doubters at this point is sort of absurd. Nobody knows more than Apple. Period.
Doubting Apple is OK, but doubting Apple because of obvious statements like "it's a phone company" or "Apple Watch is garbage" is low brow and misses everything. Friends, this is chess not checkers. Apple is ahead of us (all of us), not behind us. The company is innovating. Automobile executives have been popping up in new positions at Apple. In fact, Reuters reported that Ex-Chrysler Group executive Doug Betts has joined Apple. This is a man with 25 years experience in the industry and his prior title was "head of quality" at Chrysler. Apple knows it needs new products, and its enormous spend on R&D has likely already created the Apple Car as well as a remarkably better version of the Apple Watch.
Further, it has been reported that Apple may have already had meetings with BMW to discuss using the frame of its i3 electric car for its own electric vehicle, according to German publication Manager Magazin. Oh, and by the way, BMW makes perfect sense for Apple given that it was the first auto manufacturer to integrate the iPod ten-years ago, and recently the Apple Watch app.
You see, Apple is the best in the world at understanding the difference between creating products that people need and products that people want. Need has very little to do with Apple’s success. Apple creates want better than any firm ever, and then sells to that want better than any firm ever. It has created as strong a brand loyalty as any firm ever, and through the generations of products has an immense base of customers that continues to grow at double digits even at already staggeringly high numbers. 48,000 apps are downloaded by Apple users a minute. The risk now is simply scale. All eyes are on the Apple Watch, Apple Pay, the "Apple Car" and Apple TV.
Google's colossal success has been achieved through a focus on speed, utility and search which has become the entirety of connection and human knowledge through the Internet. It has become the continuation of our daily thought and reaches into our own technical DNA and every aspect of everything we do. It has become an extension of our lives not by creating a home, but by coming into our homes. It has created an operating system and web browser that have dominated the market after entering so late into those segments that no one else even though those areas were relevant to competition anymore.
Google is also a screaming five star company. Like Apple, Google's revenue (TTM), operating margin, net income (TTM), levered free cash flow (TTM) and R&D are all increasing. Here's a chart of Revenue (TTM) in blue bars vs. Net Income(TTM) in the gold line.
Click Here to Interact With This Image
Revenue (TTM) is up 14.4% year-over-year and net income is up 16% year-over-year.
A narrative had been forming for several years that Google as a core equity holding was dead -- a narrative which in many ways was ridiculous and totally disproved in the latest earnings release. The stock actually realized the largest single day gain in market cap value ever in the United States equity market. Google's revenue, earnings and cash from operations are at all-time highs while R&D and SG&A are near all-time highs. In 2006, Apple and Google were spending about the same amount on R&D. By 2008, Google was spending about $1 billion more annually than Apple. As of today, Google spends about $4 billion more in R&D than Apple. GOOGL spends more on R&D than almost every company in all of North America in any sector. We can look at a quarterly chart, below.
Click Here to Interact With This Image
At the Google I/O 2015 developer conference, the public was exposed to some of Google's developments, particularly surrounding Android. We saw an Android M preview, Android Wear updates, Google Photos (which will be one of the few pieces stripped out of the soon to be dead Google Plus), Android Pay (competitor to Apple Pay), Android fingerprint recognition, Android Auto (self-driving car), Virtual Reality, Project Tango (a super cool new tablet), Chromecast 2 and of course, though not presented at the conference this year, Google has three Smart Watches. Wondering where the R&D is going? That was your list.
Google is by far the most successful advertising company ever, generating nearly $55 billion in ad revenue (out of a total of $70 billion firm wide) and that makes it the second most valuable company on planet Earth (by market cap). It's literally the prefect advertising engine. Here’s why:
When a user clicks the "search” button on Google, she automatically gets (1) appropriate content (tied to the search phrase), (2) perfect timeliness (search results are immediate) and (3) Google reaches an enormous audience. Game, set and match.
In the earnings report on 7-16-2015, Google disclosed that watch time for YouTube rose 60% in the second quarter and the video service had more viewers aged 18-49 on mobile alone than any U.S. cable network. The on-line video ad space is a growing one, and both Google and Facebook are trying to entice advertisers into the space. Google is the biggest and best advertiser in the world, by a lot.
Google got into the operating system fray very late with two mega players (MSFT and AAPL) already in there, but Andoid now boasts 80% of the mobile market. Oddly, that incredible narrative is rarely discussed. However, Google has lost some of its control over the market, as many new players have created their own flavors of Android which are totally out of the hands (control) of Google. That brings a new vulnerability which MSFT is taking advantage of in a very clever and flexible way. But Google is finally focusing on increasing margins, which means cost controls and the firm brought in a true outsider with new CFO Ruth Porat (the former CFO of Morgan Stanley). Early signs show that choice was a very shrewd one.
While Google has a lot going on , of course, the first and foremost focus rightnow is Search which means ads, click rates and click rate growth.
The next part of the analysis is as easy as the first. Enter two symbols and tap the button.
Google stock has outperformed Apple over the three-month, six-month and one-year time horizons.
We have seen that on a fundamental basis, we are looking at two exceptionally strong companies with top star ratings, so the head-to-head comparison will rely on a deep dive into specific metric comparisons.
↪ AAPL has substantially higher revenue in the last year than GOOGL. Raw revenue comps do not affect the head to head rating.
↪ Both AAPL and GOOGL show positive earnings over the last year with the edge to AAPL.
↪ AAPL generates substantially larger revenue per employee ($2.0 million) than GOOGL ($1.2 million).
↪AAPL generates $1.40 in revenue for every $1 of expense, very similar to GOOGL's $1.37.
↪AAPL generates $0.23 in levered free cash flow for every $1 of revenue, notably higher than GOOGL's $0.17.
↪ Both companies are growing revenue. AAPL is growing revenue much faster than GOOGL.
↪ For every $1 in revenue, the stock market prices in $2.88 in market cap for AAPL and $6.35 in market cap for GOOGL.
The final analysis distributes 100 points in total. In this case, AAPL takes a small margin win over GOOGL.
In the case of these two spectacular companies, perhaps owning both is better than owning one as the close result implies. Personality will dictate which type of technology company an individual will choose. But now we have a powerful tool at our disposal. We can compare any two companies instantly. Like Facebook (FB) vs. Twitter (TWTR), or Netflix (NFLX) and Amazon.com (AMZN)... or Tesla (TSLA) and General Motors (GM). You are the expert. You are powerful. Try it yourself.
Single Company Trade Card