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Apple vs Google

August 25, 2014 | About:

Apple (AAPL), and Google (GOOG), (GOOGL) 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

Price to Earnings (P/E) 13.45
Earnings Per Share (EPS) $5.68
Pretax Earnings Per Share $7.35
Sales Per Share $191.61
Book Value Per Share $138.51
Growth Rate 29%
Price to Book (P/B) 3.84
EV/EBITDA 6.43

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

2013

28/09

2012

29/09

2011

24/09

2010

25/09

Total Current Assets 73286 57653 44988 41678
Cash and Short Term Investments 40546 29129 25952 25620
Cash - - - -
Cash & Equivalents 14259 10746 9815 11261
Short Term Investments 26287 18383 16137 14359
Total Receivables, Net 20641 18692 11717 9924
Accounts Receivables - Trade, Net 13102 10930 5369 5510
Total Inventory 1764 791 776 1051
Prepaid Expenses - - - -
Other Current Assets, Total 10335 9041 6543 5083
Total Assets 207000 176064 116371 75183
Property/Plant/Equipment, Total - Net 16597 15452 7777 4768
Property/Plant/Equipment, Total - Gross 28519 21887 11768 7234
Accumulated Depreciation, Total -11922 -6435 -3991 -2466
Goodwill, Net 1577 1135 896 741
Intangibles, Net 4179 4224 3536 342
Long Term Investments 106215 92122 55618 25391
Note Receivable - Long Term - - - -
Other Long Term Assets, Total 5146 5478 3556 2263
Other Assets, Total - - - -
Total Current Liabilities 43658 38542 27970 20722
Accounts Payable 22367 21175 14632 12015
Payable/Accrued - - - -
Accrued Expenses 4782 3283 2428 1593
Notes Payable/Short Term Debt - - - -
Current Port. of LT Debt/Capital Leases - - - -
Other Current liabilities, Total 16509 14084 10910 7114
Total Liabilities 83451 57854 39756 27392
Total Long Term Debt 16960 - - -
Long Term Debt 16960 - - -
Capital Lease Obligations - - - -
Total Debt 16960 - - -
Deferred Income Tax 16489 13847 8159 4300
Minority Interest - - - -
Other Liabilities, Total 6344 5465 3627 2370
Total Equity 123549 118210 76615 47791
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 19764 16422 13331 10668
Additional Paid-In Capital - - - -
Retained Earnings (Accumulated Deficit) 104256 101289 62841 37169
Treasury Stock - Common - - - -
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) -280 -232 313 -217
Other Equity, Total -191 731 130 171
Total Liabilities & Shareholders' Equity 207000 176064 116371 75183
Total Common Shares Outstanding 6294.37 6574.46 6504.94 6411.79
Total Preferred Shares Outstanding - - - -

Cash Flow Statements

2013

28/09

2012

29/09

2011

24/09

2010

25/09

Period Length: 12 Months 12 Months 12 Months 12 Months
Net Income/Starting Line 37037 41733 25922 14013
Cash From Operating Activities 53666 50856 37529 18595
Depreciation/Depletion 6757 3277 1814 1027
Amortization - - - -
Deferred Taxes 1141 4405 2868 1440
Non-Cash Items 2253 1740 1168 903
Cash Receipts - - - -
Cash Payments - - - -
Cash Taxes Paid 9128 7682 3338 2697
Cash Interest Paid - - - -
Changes in Working Capital 6478 -299 5757 1212
Cash From Investing Activities -33774 -48227 -40419 -13854
Capital Expenditures -9076 -9402 -7452 -2121
Other Investing Cash Flow Items, Total -24698 -38825 -32967 -11733
Cash From Financing Activities -16379 -1698 1444 1257
Financing Cash Flow Items -381 125 613 345
Total Cash Dividends Paid -10564 -2488 - -
Issuance (Retirement) of Stock, Net -22330 665 831 912
Issuance (Retirement) of Debt, Net 16896 - - -
Foreign Exchange Effects - - - -
Net Change in Cash 3513 931 -1446 5998

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

Price to Earnings (P/E) 31.69
Earnings Per Share (EPS) $20.63
Pretax Earnings Per Share $21.41
Sale Per Share $178.02
Book Value Per Share $130
Growth Rate 17.09%
Price to Book (P/B) 4.69
EV/EBITDA 15.94

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

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Total Current Assets 72886 60454 52758 41562
Cash and Short Term Investments 58717 48088 44626 34975
Cash 9909 8066 5271 8978
Cash & Equivalents 8989 6712 4712 4652
Short Term Investments 39819 33310 34643 21345
Total Receivables, Net 9390 8585 6172 5002
Accounts Receivables - Trade, Net 8882 7885 5427 4252
Total Inventory 426 505 35 -
Prepaid Expenses 2595 2132 1710 1326
Other Current Assets, Total 1758 1144 215 259
Total Assets 110920 93798 72574 57851
Property/Plant/Equipment, Total - Net 16524 11854 9603 7759
Property/Plant/Equipment, Total - Gross 23837 17697 14400 11771
Accumulated Depreciation, Total -7313 -5843 -4797 -4012
Goodwill, Net 11492 10537 7346 6256
Intangibles, Net 6066 7473 1578 1044
Long Term Investments 1976 1469 790 523
Note Receivable - Long Term - - - -
Other Long Term Assets, Total 1976 2011 499 707
Other Assets, Total - - - -
Total Current Liabilities 15908 14337 8913 9996
Accounts Payable 2453 2012 588 483
Payable/Accrued - - - -
Accrued Expenses 6253 5497 3188 2371
Notes Payable/Short Term Debt 3000 2549 1218 3465
Current Port. of LT Debt/Capital Leases 9 - - -
Other Current liabilities, Total 4193 4279 3919 3677
Total Liabilities 23611 22083 14429 11610
Total Long Term Debt 2236 2988 2986 -
Long Term Debt 1990 2988 2986 -
Capital Lease Obligations 246 - - -
Total Debt 5245 5537 4204 3465
Deferred Income Tax 1947 1872 287 -
Minority Interest - - - -
Other Liabilities, Total 3520 2886 2243 1614
Total Equity 87309 71715 58145 46241
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 0.33 22835 20264 18235
Additional Paid-In Capital 25921.67 - - -
Retained Earnings (Accumulated Deficit) 61262 48342 37605 27868
Treasury Stock - Common - - - -
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) 50 604 327 94
Other Equity, Total 75 -66 -51 44
Total Liabilities & Shareholders' Equity 110920 93798 72574 57851
Total Common Shares Outstanding 671.66 659.96 649.79 642.6
Total Preferred Shares Outstanding - - - -

Cash Flow Statements

2013

31/12

2012

31/12

2011

31/12

2010

31/12

Period Length: 12 Months 12 Months 12 Months 12 Months
Net Income/Starting Line 12920 10737 9737 8505
Cash From Operating Activities 18659 16619 14565 11081
Depreciation/Depletion 2781 1988 1396 1067
Amortization 1158 974 455 329
Deferred Taxes -437 -266 343 9
Non-Cash Items 2268 2288 2004 1270
Cash Receipts - - - -
Cash Payments - - - -
Cash Taxes Paid 1932 2034 1471 2175
Cash Interest Paid 72 74 40 -
Changes in Working Capital -31 898 630 -99
Cash From Investing Activities -13679 -13056 -19041 -10680
Capital Expenditures -7358 -3273 -3438 -4018
Other Investing Cash Flow Items, Total -6321 -9783 -15603 -6662
Cash From Financing Activities -857 1229 807 3050
Financing Cash Flow Items -300 -99 81 388
Total Cash Dividends Paid - - - -
Issuance (Retirement) of Stock, Net - - - -801
Issuance (Retirement) of Debt, Net -557 1328 726 3463
Foreign Exchange Effects -3 3 22 -19
Net Change in Cash 4120 4795 -3647 3432

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

P/E Ratios Apple Inc Google Inc
Current Selling Price Based on P/E $101 $592
S&P 500 $108 $365
NASDAQ $130 $475
Tech Sector $136 $495
Dow Jones Industrial Average $91.73 $333

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.

About the author:


Rating: 4.3/5 (7 votes)

Voters:

Comments

evanhlea
Evanhlea - 4 weeks ago

I think calculating these companies' worth based on their current growth rates may be imprudent. The potential for breakthrough technology, especially out of Google, is high. I would suggest that the potential for profits through massive R+D programs, some of the best minds in the world, and cutthroat cultures of creativity make both of these companies attractive investments. I would recommend Google for their sage is still alive, leading their company, and pushing constant innovation. It seems as though Apple is maximizing on Jobs' brilliance.

Cogito
Cogito premium member - 3 weeks ago

Like Evanhlea, I wonder whether one should compare Google and Apple based on P/E only. I also would believe that growth assumptions are the key factor in deciding between Google and Apple.

However, I would like to ask another question: Is P/E the right tool to calculate the value of a company holding a significant amount of cash? I feel that relative value calculations based on sector's P/Es make sense only, if one takes cash out of the equation first. I would regard Apple as being (approximately) 1/6 Cash + 5/6 business. This would give a P/E for Apple's business of about 11 (not quite correct as I haven't adjusted earnings for the cash yield). Anyway, if we adjust for cash, Apple would look even better and more valuable than in the author's text.

What do you think?

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