Apple: A better stock than Google?

As John Paczkowski at All Things Digital has noted, Apple’s market capitalization passed Google’s today, closing at $158.8-billion to Google’s $157.2-billion (as Senator Everett Dirksen is reported to have said, “a billion here and a billion there, pretty soon you’re talking real money”). Of course, as my friend Paul Kedrosky notes, Apple’s market value has eclipsed Google’s (albeit briefly) several times in the past year. Will this one last? Google’s business is arguably under more pressure as a result of the weaker U.S. economy and advertising market, but then Apple could always stumble (yes, friends, it could happen).

It’s become so commonplace now to think of Apple as a consumer products star — given the success of the iPod, iTunes and the iPhone — that I think we sometimes forget how far this company has come in just the past four or five years. Google has grown a phenomenal amount in that same span of time, with a share price that has increased five-fold, going from $100 to the current $500 level, and revenues that are now at $20-billion. Apple, however, makes Google’s growth look almost anemic by comparison: its shares have grown 10-fold, from about $16 to more than $170 at their current level, and revenue is at $30-billion.

So who makes for a better bet? If you’re looking for growth prospects, you could argue that Apple has better odds, simply because it is still a relatively small player in the PC market and the iPhone is just getting started as a consumer product. Google, meanwhile, already dominates the online search-related advertising market to the point where huge amounts of future growth could be difficult — and so far none of its side projects are really paying off that well.

From a stock point of view, Apple’s shares are trading at higher multiples than Google’s in most cases (price/earnings ratio, price to book value, etc.) but Google’s profitability exceeds Apple’s, with a profit margin of 25 per cent to Apple’s 15 per cent, and an operating margin of 30 per cent to Apple’s 19 per cent. Apple has more cash on hand, with $20-billion — administered through a special in-house investment fund based in Nevada, someone told me recently — while Google only has about $13-billion (only!), but a bunch of money sitting around isn’t really worth all that much from an investment point of view.

In the end, it comes down to who you think has the best chance for growth: the king of online search and online advertising, or the company that has managed to transfer its legendary coolness factor and design sense from computers to digital music players and now cellphones?


Leave a Reply

Your email address will not be published.