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Apple Is Valued Less Than Google. So?

February 15, 2014 | About:
Nitish

Nitish

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Apple (AAPL) needs no introduction. It is the world’s biggest, richest and one of the most powerful technology companies. The company with the highest market capitalization in the world is not the most valuable company though. Apple’s market cap at the moment is a whopping $480 billion with around $141 billion in cash and an EV of $ 339 billion.

If one looks at Google’s (GOOG) figures one finds that it is in a much better position than Apple. Sitting pretty at $ 400 billion, Google’s market cap may not be as great as Apple’s. In fact Google’s cash reserves are also lower than Apple’s at $ 58 billion. What has stunned the analysts is the fact that Google’s EV is still stronger than Apple’s. The approximate enterprise value that Google enjoys is a whopping $ 342 billion- a tad more than Apple.

To put this in perspective, Apple trades at 7.7x EV/FCF while Google trades at 30.3x EV/FCF. Now, Google and Apple aren't exactly operating in the same businesses, and frankly, Google's business is "safer" than Apple's, but this valuation gap is pretty ridiculous and indicative of one thing: the market expects Google's free cash flow to grow "to da moon" and Apple's to, at some point, crater as a result of competitive pressures of secular headwinds.

So What?

Even if Google is valued more than Apple, it doesn’t mean that the tech giant can be written off just as yet. Google’s just released Nest is too young to face the stringencies of the market. Apple’s iOS and other associated derivatives have stayed and ruled the smartphone scene since time immemorial. It’ll not only be difficult but impossible also for Google’s newest kid on the block to knock the ‘giant’ off its feet. Apple thus has every possibility of capitalizing on the smartphone market.

This apart, there is every scope of Apple enjoying an incremental market share in the smartphone market and continued secular growth in both the smartphone and tablet markets. This is only possible when a company has huge cash balances and it’s true for Apple. What needs to be seen though is how it’s put to use.

All in all, Apple still has huge scopes in terms of development in the market. Till the time its coffers are full the giant needn’t worry about low EV. Huge cash balance being put to correct use in appropriate time is all it takes to be on top. Investment in Apple’s stocks wouldn’t be a bad idea.


Rating: 1.5/5 (10 votes)

Comments

chompinchuck
Chompinchuck - 6 months ago

If you go around asking opinions of a room full of Apple, Intel, Microsof, Google, Twitter, Amazon, Facebook or whatever tech or semi-tech or social media/tech big cap stocks, you will find many who STONGLY feel that this one, that one, or a few of them are selling at half price. This means of course that if these stocks are at half price then at full price they would make up more than half the US market capitalization of all stocks.

So you have a hand held device that will be wearable one day, but everybody and his brother will be able to make it, a social media page that really can be created anywhere, etc. and somehow we think these few areas of the economy are going to be 50% of the economy? The moat long term?

Wasn't RCA the most dominant tech stock ever?

mla
Mla - 6 months ago

Interesting comment, Chomp.

What numbers are you using for that? I just looked up total US market cap on World Bank and it's showing ~ 18.5 T. Is that roughly the number you're using?

nagarajnunna
Nagarajnunna premium member - 6 months ago

"Google’s just released Nest is too young to face the stringencies of the market. "

Where did you get this from? Nest has been around(as an independent company before being bought by google) for 2 yrs now and has been a very successful with their products.

It’ll not only be difficult but impossible also for Google’s newest kid on the block to knock the ‘giant’ off its feet. Apple thus has every possibility of capitalizing on the smartphone market.

Nest doesnt make smartphones. Nest's products dont even compete with apple. Apple has nothing in the space Nest operates in.

Do your research.

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