Apple vs Google

Apple (AAPL), and Google (GOOG, Financial), (GOOGL, Financial) are two of the most profitable and dominant technology companies in the world. Both companies are known for their ability to constanly innovate their way to more market share and profits. Apple and Google are both trail blazers in the techology sector, one revolutionized consumer electronic products and the other organized the web through web search. Both companies have changed the way we connect to the internet, with friends, family, co-workers and how we interact with our devices.

Apple Inc.

Apple is a multinational company headquartered in Cupertino, California. It's in the business of designing, developing and selling consumer electronics, computer software and personal computers. The company's best-known hardware product line is its Mac line of computers, the ipod, the iphone and the ipad. Its consumer software line includes the OSX and iOS operating systems, iTunes, Safari browser, iLife and iWork creativity and productive suites. The iPhone and iPad have an combined market share of 54%. Apple is currently rated the most valuable brand in the world by Forbes, and the 15th-largest corporation in the world. The company maintains 408 retail stores in 14 countries. In 2013 Apple had revenues of $170 billion. As of quarter one of 2014, Apple has a five-year average growth rate of 39% for top line growth, and 49% growth for bottom line growth.

Apple's valuation and ratios

Apple Inc. has a solid balance sheet with over $100 billion in cash on hand. A share repurchase program of $30 billion is in place, and in the last few months it has repurchased about $15 billion in shares. Carl Icahn (Trades, Portfolio) says that, if Apple sold at the same average price-to-earning multiple as the S&P 500, its share price would be $108 which is less than 10% above its current price. The technology sector sells at a P/E of 18.70, which is higher than Apple at 13.5 times earnings. If Apple's shares sold at the same P/E as the Technology Sector, its share price would be $106 or sold at the same multiple as the NASDAQ it would be $136 per share. This gives Apple a share price range from $106 to $108. A less than 10% margin of safety isn't good enough for capital protection for the investor.

For the 39 weeks ended June 28, 2014 the company revenues increased 5% to $140.67 billion and net income increased 5% to $31.04 billion. Revenues reflect an increase in demand for the company's products and services. Apple dividend increased from $1.19 to $1.34 and earnings per share increased from $4.51 to $5.05.

Balance Sheets

Cash Flow Statements

Google Inc.

Google is an multinational company headquartered in Mountain View, California. The company specializes in internet-related services and products that includes search, cloud computing, software and online advertising technology. Most of Google's profits are derived from Adwords. Google has had rapid growth that has triggered a chain of products, acquisitions and partnerships that goes beyond the company's core product search. The company offers online productivity software including Gmail, Google Drive and Google Plus. Its desktop products include Chrome Browser and Instant Messaging. Google mobile operating system Android has a market share of 78.9%, making its operating system the most dominant in the world. In 2013 Google had revenues of $59 billion, profits of $12 billion, enterprise value of $22 billion and total assets of $110 billion. Google is the fifth-most valuable brand in the world and in the top 70 most valuable corporations in the world.

Google's valuation ratios

Google also has a solid balance sheet with about $50 billion in cash on hand. Google sells at a P/E ratio of 31.69 which is higher than the tech sector's of 18.70, and higher than the NASDAQ at 21.95. Google is selling at a premium over all of the stock exchanges in the United States,\; you'll be better offer buying Vanguard Index Funds than Google. Based on the NASDAQ, Tech Sector, and S&P 500 P/E Google has a price range from $333 to $365 per share.

For the six months ended June 30, 2014, revenues increased 20% to $31.38 billion and net income increased 13% to $7.6 billion. Revenues reflect an increase in demand for the company's products and services. Net income was partially offset by Research and Development increase of 31% to $3.4 billion and general administrative increase of 35% to $2.2 billion.

Balance Sheet

Cash Flow Statements

Compared valuation of Apple and Google

Apple is ranking in over $37 billion a year in revenue compared to Google's annual income of 13 billion. Apple's net income is three times that of Google and has four times more cash on hand than the cash flow of Google. Apple at a P/E of 13 and Google at a P/E of 31 clearly shows which company is a better buy.

Compared Apple and Google stocks selling at different P/Es

By using the P/E of the lead stock exchanges, we can see a range of valuation for Apple and Google. These ranges of valuation show which company is overvalued and which one is undervalued. Based on compared valuation shows that Apple is undervalued in term, while Google is overvalued selling at a P/E multiple that is higher then the leading exchanges. But these valuation ranges are inflated just like the valuation for both companies. Its clear that both companies are highly profitable and have lots of cash on the balance sheet but at today's valutions it's a large risk to invest in both companies. In a market downturn or a black Monday fall, then it would be prudent to invest in both Apple and Google.