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Better Buy: Apple vs Alphabet



apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) has each renewed itself to the top of the technology industry. This success has given huge returns to their long-term investors. While both companies will continue to grow, there is an intangible factor: how well Apple and Google can benefit from their innovations when it comes to deciding which of these technical stocks can provide the best investment.

What attracts customers to each company

Although Apple abandoned the slogan “think differently”

; many years ago, this mindset has long defined the company and its innovations, and led to successful products such as the iPhone. Today, it seems that smartphones and other products are ready to drive further growth.

Uses typing on a laptop in search of information.

Image Source: Getty Images

Yet no one can deny the Alphabet’s own innovative skill. Its dominance of search and video sharing resulted in a lucrative internet advertising industry that drives most of the company’s revenue today.

Although they have followed different paths, both companies have become competitors in some areas, especially mobile operating systems. Apple’s iOS and Alphabet’s Android dominate this part of the industry. According to Statcounter, Android controls around 72% of the market, while iOS claims just over 27%.

Innovation management

Despite Android and other businesses, Alphabet is still dependent on ads. Now the company is facing increasing advertising competition from Facebook and Amazon. It retains about 29% of the US digital ad market, down from 32% last year, according to eMarketer. While this is a good reason for Alphabet to innovate and branch out from Google, search engine and related operations, including YouTube, still account for more than 99% of the company’s revenue. In addition, Google Cloud revenue is the only Google business that is distributed separately from the ad-related parts of Google, giving investors little overview of which specific segments are driving revenue growth.

Furthermore, the potential value that is not reflected in the Alphabet’s economy should relate to investors. The Financial Times estimated the value of Waymo, the Alphabet’s self-driving car unit, at $ 30 billion – just under 13% of the Alphabet’s book value of $ 201.4 billion. This estimate does not even address Sidewalk Labs, Verily Life Sciences, Calico, Fiber or Alphabet’s many other businesses.

Still, according to the company, all non-Google businesses generate less than 1% of the company’s revenue. Admittedly, the company may include revenue from some of the divisions mentioned under the Google umbrella. However, even under the best-case scenario, the average investor has no visibility into whether or how much these companies contribute to income and earnings.

Apple has also innovated in recent years, especially with a 5G iPhone, Apple Silicon processors, the thriving subscription-based service business and the health monitoring features of the Apple Watch. However, Apple reveals more explicitly than Alphabet how they monetize innovation, breaking out the revenue from each of the different businesses and product lines they run. Therefore, we know that all product categories such as iPhone, iPad, services and wearables are currently increasing revenue at double-digit prices.

Financial results

Giving investors more insight into the value the various businesses create can explain why Apple far surpasses the Alphabet in market value. Its value of $ 2.3 trillion is about 65% greater than the Alphabet’s $ 1.4 trillion.

Admittedly, Alphabet has recorded faster growth recently, mainly due to Google Cloud’s 46% revenue growth over the last 12 months. Alphabet reported more than $ 182.5 billion in net sales, up about 13% from the previous 12-month period. This compares with Apple’s sales of $ 294.1 billion – far larger than the Alphabet, but only a 10% increase over the same period. Alphabet also recorded 17% net revenue growth against 11% for Apple.

Alphabet nevertheless reported greater revenue growth by cutting sales and marketing costs and reducing growth in research and development costs. On the other hand, Apple’s operating costs have generally increased with increasing revenues, with research and development increasing by more than 16%. The alphabet can not Reduce these costs forever and expect to be competitive. Therefore, this is probably not as much a benefit to Alphabet as it may seem.

In addition, the size of each company’s cash indicates Apple’s better long-term performance. Although Apple recently took advantage of the debt market, it can do without borrowing. Apple has nearly $ 196 billion in cash and equivalents. Although Alphabet’s nearly $ 137 billion in cash and equivalents puts it in an equally stable position, Apple is still in that area.

Investors have begun to appreciate this benefit. Apple sells for 37 times earnings compared to Alphabet’s P / E ratio of around 35. Alphabet was still historically the more expensive stock. As recently as two years ago, Apple’s P / E ratio was around 13 while the Alphabet was in the 25 series.

Growing demand for technological products in the midst of the pandemic, as well as Apple’s new technology such as the 5G iPhone, Apple Watch and Apple’s silicon chip, probably contributed to increasing demand for Apple shares. This expansion has several times helped Apple shares almost double Alphabet shares’ returns over the past 12 months.

AAPL diagram

AAPL data from YCharts

Why I choose Apple

Both companies promote innovation and have enough money to control their destinies. However, while Alphabet invests heavily in new technology, it has either not made money on the inventions well, or at least refused to communicate these results to investors.

Conversely, Apple has capitalized on the iPhone, Apple Watch and other inventions and has reported such results more explicitly. Such transparency makes Apple an easier choice. Until Alphabet can figure out how to unlock and reveal more of its potential value, I think investors should keep biting into Apple.




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