Why Microsoft and Apple's Market Caps Should Be Reversed 25 comments
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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
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On Jul 27 07:13 AM holmesnmanny wrote:
> Yes, Sony stopped innovating. Microsoft is doing the same thing.
> They are the face of the biggest OS on the market and they have the
> potential to build off of it, especially utilizing WMP and they aren't.
> Instead, they're letting Apple run circles around them. They are
> hoping that their face makes money, similar to why Sony fell off
> the map.....less innovation.
AAPL MSFT
P/E 25 12
ROA 11 17
ROE 23 38
I find this quite amusing, BTW.
Apple exceeded Google's marketcap last year. Within the next 2 years, I believe they will exceed MSFT, and from that point on, MSFT will continue to flounder, just as they have been doing for the past decade.
You can only argue against the facts for so long. All those deferred revenues for Apple are continuing to escalate.
p.s. You are seriously misinformed if you think that the iPod or the iPhone are "proprietary". They are not anymore 'proprietary' than any other non-GENERIC product. They are even made from commonly available parts. All of Apple's products are based on real standards, both software and hardware, not on proprietary MSFT only formats that lock you into using Windows (Outlook, Word, Excel, etc...) Apple has worked around all of these now. Their Outlook killer is coming this fall, the other formats were broken down over a year ago--any program on the Mac can open and save them now.
Anyone can make software and accessories for any Apple product. They are simply not GENERIC as is the 'IBM CLONE'. Companies selling generic clone hardware are doing nothing more than cobbling together generic parts which any below-average HS dropout can do for themselves. None of the generic PC companies do ANY software development and very little hardware development.
The pattern is, Apple comes out with new product, they criticize it until they can copy some of it, then pretend that Apple had nothing to do with it. They learned this from MSFT.
MSFT is going the way of GM.
Why do you bother commenting on Apple now? We read your past blog article, it was wrong. What makes you think you are right this time?
You want to pump Apple, do so on its own terms.
Must be the summertime drought that had this junk article pass through the editors' screening process.
Buy APPL for some for-sure immediate day-trading. The time for a longer-term MSFT purchase could be after an expected August/September swoon.
"I will repeat my caution. Over the past five years Apple has gained nearly 60% a year. The chance that it will do the same over the next five is remote. That would make it worth $1.25 trillion. The returns are likely to be more modest. And the risks will be greater."
www.marketwatch.com/st...
2. I write when I feel like that. Any problem with it?
On Jul 27 12:04 PM brewer wrote:
> Alex,
>
> Why do you bother commenting on Apple now? We read your past blog
> article, it was wrong. What makes you think you are right this time?
But to read the fanboy postings here one would think apple had zero issues.
On Jul 27 04:44 PM jack dee wrote:
> Apple has released well over 100 patches to fix security vulnerabilities,
> in OS X and its browser has had lots just in the last few monthes,
>
>
> But to read the fanboy postings here one would think apple had zero
> issues.
>
>
1. Total assets: Microsoft has more $7B in assets than Apple does
Apple: ~35 B
Microsoft: 42 B
2. Number of shares outstanding:
Apple: 895.82M
Microsoft: 8.91B
Microsoft has 10-fold number of shares in comparison with Apple
3. Price Per Share:
Currently, Apple is trading at $160.10, while Microsoft is at $23.11
Therefore, Apple's market cap is $143.42B (895.82M x $160.10), and Microsoft's cap is $205.86B (8.91B x $23.11).
I agree with you that Apple is highly strong in growth but you can not conclude that Apple should have 205.86B in reverse. Of course, Apple can in case of issuing more shares equal to Microsoft's shares.
Apple ... the first trillion dollar company? :)
It's hard to base on Research Development ratio to prove that Microsoft and Apple's market cap should be reversed. This is not a good point.
On Jul 27 06:49 PM pitini wrote:
> Are you serious ? I thought you are comparing a chicken's egg and
> a dinosaur's egg.
> 1. Total assets: Microsoft has more $7B in assets than Apple does
>
> Apple: ~35 B
> Microsoft: 42 B
>
> 2. Number of shares outstanding:
> Apple: 895.82M
> Microsoft: 8.91B
> Microsoft has 10-fold number of shares in comparison with Apple<br/>
>
> 3. Price Per Share:
> Currently, Apple is trading at $160.10, while Microsoft is at $23.11
>
>
> Therefore, Apple's market cap is $143.42B (895.82M x $160.10), and
> Microsoft's cap is $205.86B (8.91B x $23.11).
>
> I agree with you that Apple is highly strong in growth but you can
> not conclude that Apple should have 205.86B in reverse. Of course,
> Apple can in case of issuing more shares equal to Microsoft's shares.
As for MSFT, the failure of VISTA means the next generation of its OS must be bought. I don't understand why, but I do know that our IT department says we have to, and we have to buy more powerful boxes, too. So we are budgeting a hefty 6 figure amount so that we can continue to word process and do spreadsheets.
We are just a small firm of 40 lawyers. Multiply our lemming-like purchasing over the country, because our clients buy this same stuff and we have to integrate, and I at least want to own Microsoft stock.
Apple management is light years ahead of the doofs who run MSFT, but I think MSFT stick has more upside. And don't kid yourself it's GM. There are no legacy costs; there are no unions; and there is no foreign competition.
I really thought Apple had a chance to gain market share with Vista being a failure, but I think Apple lost desktop market share during that time. It really doesn't matter as long as Apple continues to make money from the mobile division and any little growth is still an improvement. Apple continues to say it doesn't want to make the most computers, only the best computers and I suppose as long as they accomplish that it's worth something.
I wish that Apple could regain a decent percent of educational market share but that, too, seems out of reach. It all seems to boil down to how cheap a computer system you can sell in order to gain market share and Apple just doesn't play that game. Profits over market share seems to work well enough and it will just have to do.
Consider this very feasible engineering idea... which BTW I am surprised more seasoned Apple watchers are not really talking about or even speculating about... what if the iPhone, iPod Touch and supposed iTablet are all just appetizers for the main course... which is to integrate a 3G WCDMA chipset into the 13" MacBook Pro? Here is my theory... for what it is worth...
One could argue that the acquisition of PA Semi was really for a much larger strategy than just a processor for the iPhone, iPod Touch and iTablet. Apple probably could not get Intel to engineer a processor that would be able to handle all the power requirements of a 13" MacBook Pro with an integrated 3G (or even 4G LTE) chipset without compromising battery life. The entire hardware engineering for such a product would probably have to be "from scratch" if Apple did not want to compromise on anything... which is typical... so they bought PA Semi so that they could have full control across ALL their mobile products (including laptops). The end goal is having total vertical integration and control across all their products.
I also believe that Apple's experience over the last few years dealing with the Tier 1 Telcos has been an eye opener. Tim Cook has said on numerous occasions that Apple does not know how to build a great laptop and sell it for $499-$599 and make a healthy GP. However, what Apple DOES KNOW is that if they could integrate a 3G/4G chipset into their 13" MacBook Pro, they could have their Telco partners sell the laptop for about $499-$599 and subsidize the rest! All of a sudden, Apple is competing squarely in the netbook market with a product it can be proud of!! If consumers don't want to tie themselves to a Telco, then they would still be able to buy an Apple laptop in the $1000+ range.
Which brings me to this article... can Apple eventually eclipse Microsft in market cap? If you believe as I do that Apple's real mission is to become the undisputed leader in mobile computing, with 3G/4G enabled across all their products (iPhone, iPods, iTablet and MacBook Pros), then I think the answer is obvious. RIMM, NOK, GOOG, DELL, HPQ and certainly MSFT would all have a hard time trying to achieve a similar goal with a similar product lineup.
On Jul 27 04:44 PM jack dee wrote:
> Apple has released well over 100 patches to fix security vulnerabilities,
> in OS X and its browser has had lots just in the last few monthes,
>
>
> But to read the fanboy postings here one would think apple had zero
> issues.
>
>