Apple Announcements Justify A Google Multiple

Jan.13.12 | About: Apple Inc. (AAPL)

At its current price Apple (NASDAQ:AAPL) is trading at a PE multiple of just over 15. Google (NASDAQ:GOOG), by contrast, is trading at 21.

Given that Apple is three times bigger than Google by revenues, with Google drawing almost twice as much of its sales to the bottom line, this would seem to make sense.

But with Google about to acquire Motorola Mobility (NYSE:MMI), which has one-third its sales but contributes almost nothing to profit, this is going to change. The two companies' net margins are about to come together.

That said, who has better opportunities for top-line growth? It's hard for me, a Google stockholder, not to acknowledge that it's Apple:

  • The Apple 4S launch in China was treated like the Beatles' Shea Stadium concert. Historians will note that was the Beatles' last appearance. The 4S will eventually land in the country, but it's telling, as an indicator of corporate power and sales strength, that a product launch would get such a reception.
  • Apple's "specialty stores" in U.S. targets are less exciting, but could prove equally profitable. Having a real boutique in a mainline department store [which is how we treat Target (NYSE:TGT) and Wal-Mart (NYSE:WMT)] is a bigger deal than having a kiosk at BestBuy (NYSE:BBY) or Fry's.

  • Apple continues to gain share in the PC market, which on a per-sale level is measured in thousands, not hundreds of dollars.

  • Apple is preparing to revolutionize both the TV and education markets this month with major announcements that will lead directly to sales and earnings.

  • Apple is patenting a combination of sensors that amount to a 3D user interface with motion being the third dimension. Hard to see Google or Amazon finding a work-around for that innovation.

  • Apple leads in mobile customer satisfaction.

  • There are some complaints over CEO Tim Cook's pay package but in fact they've tied him up for 10 years through slowly-vesting stock grants. You don't think a top CEO is worth just 50% more than an aging first baseman? I do.

Not all the compression between these two firms' multiples' will take the form of Apple gains. Some might take the form of slower performance on Google shares. And remember that Apple is doing this while giving shareholders a proverbial back-of-the-hand - there is still no dividend nor any indication its huge cash hoard might be disgorged.

So if Apple goes on sale, even a little, buy some. I will.

Disclosure: I am long GOOG. As the story indicates I might pick me up some Apple soon.