Apple (AAPL) has a $143 billion market cap, a number that has been roaring up as the company delivers sensational quarters in arguably the most difficult economic environment since the 1930s. In contrast, Microsoft (MSFT), after a truly dismal earnings report, dropped a whopping $20 billion in one day to tumble to a $208 billion cap. To put that tumble in perspective, only about 140 publicly traded companies have $20 billion or more in cap, 7100 don't.
Should the market caps of the two companies be reversed? Does Apple deserve a $208 billion cap while Microsoft settle for a further $55 billion haircut?
Let's look at Apple. Certainly GAAP earnings and revenue delivered. The real story though is that 626% iPhone growth. Very little of that is factored into this quarter's GAAP numbers. As discussed previously, nonGAAP earnings give the true figures of how the company is performing. That is the only way to account for current revenues and profits delivered by Apple's iPhones as GAAP earnings only give that quarter's share of 24 month subscription sales.
This is the first time that Apple has broken out four quarters of nonGAAP earnings and revenue. Before iPhone, earnings were, well, earnings; it did not matter whether they were GAAP or non-GAAP, they were the same. So now we can make year over year comparisons. Over the last four quarters, Apple generated $42.3 billion in non-GAAP revenue and $8.3 billion in non-GAAP profits. To put those numbers in perspective, Apple had $24 billion in revenue and $3.5 billion in profits for the year ending September 2007 (Note that the iPhone came out in July 2007, so the comparison is not completely perfect, there's a smidgeon of overlap). That represents a 76% increase in revenue and 137% increase in profits over the year ending September 2007. In the year ending September 2006, Apple had revenues of $19 billion and net profit of $2 billion. In less than three years, Apple has more than quadrupled its net profit and doubled its revenues.
In contrast, it has taken Microsoft ten years to double its profits and triple its revenues. While Apple has managed its outperformance during this "Great Recession", Microsoft has failed to continue its growth. Microsoft dropped its revenues 17% and earnings 29% this quarter. Over the last year, Microsoft spent $9 billion in R&D and stagnated; Apple spent about $1 billion and delivered products that have revolutionized how we communicate and think. Microsoft has not delivered a new product that has caught on since Window XP. Microsoft has always been considered a cash flow king. Microsoft's operating net cash fell from $4.1 to $3.8 billion while Apple's climbed from $5.3 to $7.0 billion.
Apple and Microsoft will change places. Apple goes to a market cap of $200. Microsoft moves down to a $140 cap.
Disclosure: long AAPL, no position MSFT