Apple vs. Alphabet Stock: The Comparison May Surprise You

by Trefis Team
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Apple’s (NASDAQ:AAPL) stock is up by about 140% since early 2017. That’s great for Apple. But hold on, Google’s parent Alphabet’s stock is up by just about 65% over the same period – meaning that Apple’s stock is up more than 2x Google’s stock. This comes despite the fact that Alphabet’s Revenues have grown by 80% between 2016 and 2019, compared to just about 20% growth for Apple. Moreover, Apple’s P/E multiple has expanded from 13x in 2016 to 23x in 2019, while Google’s multiple has actually contracted from about 28x to 26x despite the fact that Apple’s net profit margins (net income as a percentage of sales) are roughly the same as Google’s at about 21%. Does that make sense? We don’t think it does and believe Google is likely the stronger investment right now. Our dashboard Apple’s 2x Price Rise Vs. Google Isn’t Justified, has the underlying numbers.

How Do The Core Businesses For Alphabet And Apple Compare?

Let’s look at the core business prospects a bit more closely. Google has very large advertising exposure from travel, restaurants, and the broader consumer discretionary spend decline. It is possible that Google’s earnings, due this Tuesday, will paint a tough picture. On the flip side, businesses of all stripes, from mask sellers to restaurants, need any customers they can get – now – and this is going to come primarily online. It is possible that Google’s pay per click advertising, for which marketers only pay when their ads get results, could hold up stronger than we realize.

Apple too looks vulnerable. Although the company is likely to launch multiple new iPhones this fall featuring 5G wireless technology, there may be little reason for people to upgrade costly discretionary items such as smartphones right now as the health crisis continues and the economy heads into what is likely to be a deep recession. While Apple’s services business – which has limited dependence on advertising – is likely to fare well in the current pandemic driven by the AppStore and subscription services, Google’s Cloud and other internet “utilities” could also see sizable gains. Google has a growing presence across enterprise cloud, Google Drive storage, Google suite applications: from Gmail to Chrome, and Docs, Sheets, and Slides. While many of these offerings don’t make much money yet, they provide a promising floor to our belief of Google being undervalued.

The final straw may be Google X’s diverse “moonshot” bets that range from Waymo (driverless cars) to Verily and Calico (health care) to Deepmind (Artificial intelligence systems) that again present upside in a world where asking seemingly wacky questions and then putting your money to find answers, might be the only sane path forward. To distill, we believe Google is likely to outperform Apple, if not near-term, at least in the medium- to long-run.

There may be another big opportunity when you compare Google to Microsoft

 

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