appeal (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) each renewed their path to the top of the technology industry. This success has given their long-term investors great returns. While both companies need to continue to grow, it is an intangible factor to determine which of these technology stocks can make the best investment: how well Apple and Google can leverage in their innovations.
What attracts customers to every business
Although Apple abandoned the slogan “think differently” years ago, this attitude has long defined the company and its innovations, leading to successful products such as the iPhone. Its smartphones and other products currently look ready to bring about further growth.
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No one can deny Alphabet’s own innovative skill. The dominance of search and video sharing has created a lucrative internet advertising industry that today generates the bulk of the company’s revenue.
Although they followed different paths, both companies became competitors in some areas, especially mobile devices. Apple’s iOS and Alphabet’s Android dominate this part of the industry. According to Statcounter, Android controls about 72% of the market, while iOS claims just over 27%.
Innovation leadership
Despite Android and its other ventures, Alphabet still relies heavily on advertising. The company is now facing increasing advertising competition from Facebook and Amazon. According to eMarketer, it retains about 29% of the US digital advertising market, up from 32% last year. While this is a good reason for Alphabet to innovate and branch out from Google, the search engine and related operations, including YouTube, still make up more than 99% of the company’s revenue. In addition, Google Cloud Revenue is the only Google business set apart from the ad-related parts of Google, giving investors little visibility into what specific segments are driving revenue growth.
The potential value that is not reflected in Alphabet’s financial account should also affect investors. The Financial Times estimated the value of Waymo, Alphabet’s self-driving car unit, at $ 30 billion – just under 13% of Alphabet’s $ 201.4 billion alphabet value. The estimate does not even address the many other businesses of Sidewalk Labs, Verily Life Sciences, Calico, Fiber or Alphabet.
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 above divisions under Google’s umbrella. However, even in the best case, the average investor can not see whether or not these businesses contribute to income and earnings.
Apple has also been innovating for the past few years, especially with a 5G iPhone, Apple Silicon processors, its thriving subscription-based services, and the health watch features of the Apple Watch. However, Apple reveals more explicitly than Alphabet how it benefits from innovation, by breaking out its revenue from each of the different businesses and product lines it pursues. Consequently, we know that all product categories such as the iPhone, iPad, services and portable items are currently growing at double digit rates.
Financial results
If investors give more insight into the value that different businesses create, this may explain why Apple far exceeds the Alphabet in market capitalization. The $ 2.3 billion valuation is about 65% higher than Alphabet’s $ 1.4 billion.
Admittedly, Alphabet recently recorded faster growth, mostly due to Google Cloud’s 46% revenue growth over the past 12 months. Alphabet reported more than $ 182.5 billion in net sales, about 13% higher than the previous twelve-month period. That compares with Apple’s sales of $ 294.1 billion – generally much larger than Alphabet’s, but only a 10% increase over the same period. Alphabet also grew 17% net revenue versus 11% for Apple.
Nevertheless, Alphabet reported greater revenue growth by reducing sales and marketing costs and slowing the growth of research and development costs. In contrast, Apple’s operating expenses generally increased with rising revenue, with research and development rising by more than 16%. Alphabet can not reduce these costs forever and expect to stay competitive. So it’s probably not as much for Alphabet as it may seem.
In addition, the size of each company’s cash flow indicates Apple’s better long-term performance. Although Apple has recently taken advantage of the debt market, it can manage without borrowing. Apple holds nearly $ 196 billion in cash and equivalents. Although Alphabet’s cash and equivalents of nearly $ 137 billion put it in a similarly stable position, Apple still remains in this area.
Investors realized this advantage. Apple sold 37 times the earnings compared to Alphabet’s P / E ratio of about 35. Nevertheless, Alphabet was historically the more expensive. Two years ago, Apple’s P / E ratio was around 13 while Alphabet was in the 25 series.
Rising demand for technology products amid the pandemic, as well as Apple’s new technologies, such as the 5G iPhone, the Apple Watch and the Apple silicone chip, have likely increased demand for Apple’s inventory. This multiple expansion has nearly doubled Apple’s share over the past 12 months.
AAPL data by YCharts
Why I choose Apple
Both companies promote innovation and hold enough cash to control their fortunes. Although Alphabet invests heavily in new technology, it has not earned its inventions well, or at least not communicated the results to investors.
Conversely, Apple minted the iPhone, Apple Watch and other inventions and 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 believe investors should keep biting Apple.