Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are among the leading technological product and service providers. The two American giants are locked in a battle on several fronts to make their products -- such as tablets, smartphones, and software development -- more attractive. However, Google collects 97% of its revenue via advertising on its own sites while Apple's combined sales of iPhones and iPads account for up to 72.5% of its revenue. The two companies comparatively generate their revenues in different manners. However, their rivalry remains primed most recently because of their competition in the handhelds sector. These two industry giants have a lot of competitors of their own; perhaps Google and Apple aren't even direct competitors at the moment. However, Google has bought Motorola to challenge Apple, which is the market leader in smartphones.
The purpose of this comparison is to evaluate the capacity of each company to become the market leader in the smartphone and tablet business. Additionally, this comparison provides a fundamental approach to compare two companies -- both of which are about to launch new products to increase their stock values.
Let's start off with the market cap for the two giants. The market cap for Google is $224 billion and $623 billion for Apple. While the market cap shows Apple's superior performance in the last five years, this indicator obviously does not show both sides of the story. There are a lot of useful details that are undoubtedly important for the future. Therefore, I will provide a deeper analysis of the fundamental differences between Google vs. Apple in this article.
Google is an American multinational corporation that provides products and services related to the Internet -- e.g., cloud computing and a well-known search engine. The company was started in 1998 and Google quickly found its way into the internet spotlight. Since then, Google has diversified its product palette by including mail, social networking, blogs, and cloud facilities. Furthermore, it has also ventured into the tablet industry by introducing its own Nexus 7 tablet this year, which rivals Amazon and Apple in the market. More importantly, Google has not been offering dividends on its shares until now. However, there is a lot of pressure on technological companies to provide dividends because of their monumental increase in profits and cash. For this very reason, I expect Google to provide its shareholders a decent amount of dividends in the future. Google's five-year EPS growth rate stands at 24.52%, and the trailing P/E ratio is 20.31 while the forward P/E is expected to be 14.5. The beta is 1.08 and the company supports relatively weaker ROE of 19.04%.
Apple is an American multinational corporation based in Cupertino, Calif. Apple's products are primarily consumer electronics and computer software. It is also the largest company in the world according to market cap. The company, which was formerly known as Apple Computers, has been in operation since 1976 and was primarily a computer manufacturing company, but over time it has diversified its product line to iPod, iPad, iPhone, iCloud, and other technological services. This is the reason for its name change from Apple Computers to Apple Inc. in 2007. Apple announced a dividend of $2.65 beginning from Q2, which makes them much more attractive than their competitors. Apple's market cap is $624.9 billion, which is almost triple the size of Google. The trailing P/E ratio is 15.6 and the forward P/E is 14.7. Its beta value is 0.9. The current dividend yield is 0.40%, but projected yield is 1.6%. The past five-year EPS growth rate has been 64.90%, and analysts estimate an EPS growth rate of 52.49%. ROE is 44.32% which is significantly higher than Google. On July 25, Apple's target price was downgraded to $790 by Goldman Sachs because of relatively weak Q2 earnings.
Current Industry Average
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The analyses of recent data show that the fundamental ratios of Google and Apple are quite different from one another. However, a lot of this has to be attributed to the fact that Google and Apple are at two different stages in their product development. This is also emphasized by the P/E of Apple and Google. Apple's P/E is under the industry average, which shows that the company's revenues and earnings are not growing at the same rate as before which is a common phenomenon.
Similarly, since Google's P/E is above the market average it is still in its initial phases of progress. The stock price for Google will continue to rise much longer than Apple before it eventually levels out. A high P/CF suggests that the company's stock is trading at a high price, but insufficient cash flow is being generated to maintain the multiple values. In the case of Apple and Google, both companies are well established. They are pursuing growth ventures, so even though their averages are above the market average. As both companies possess flawless cash flow records, there are no warning signs.
P/S ratio is in Apple's favor as its iPhone and iPad have had record sales this year. The P/B values ensure that Google and Apple have enough assets when compared to their liabilities and that both do well in this measure.
Google is introducing new avenues of revenue generation via advertising. Apple, on the other hand, is consolidating on its production of iPhones and iPads by extending their life cycle with every new model. Both companies were successful in staying above the financial crisis. Actually, the technological industry as a whole was the least affected industry in the international financial meltdown. The fluctuations in P/E for Apple can be attributed to the launch of their new products. In 2009, Apple introduced the iPad which contributed to the rise in P/E from 23.1 to 30.4. The P/E ratio has been deviating for both Apple and Google as we can see in past data.
Google's gross margin is consistently around 60% whereas the net margin has been fluctuating across 25%. Due to the nature of the industry, the two technological giants cannot be expected to make a loss anytime soon. Google is outperforming Apple with its rate of improvement every year, but it will still need to cover a lot of ground before it can challenge Apple. Primarily, that's because Apple's stock price value is still three times greater than that of Google. To maintain such high levels of growth year after year is a testament to Apple's performance. Apple's average gross margin is 40% while the net margin is 22%. These results are highly reputable.
Apple is the largest U.S.-based company of all time, and a dividend of $2.65 has also been announced since Q2 of 2012. Google is a giant on its own and promises to get even bigger in the next few years. However, in order to ensure continued growth of the company, it is imperative that Google pays its shareholders a dividend that is long overdue. Unless Google takes this step, Apple's advantage of earning a huge EPS will always keep more of an attraction than that of Google. Even though these two companies are currently operating in different markets, Google's introduction of its Nexus 7 tablet and other electronic devices are certainly bringing the two giants together. Google has also bought Motorola in an effective move to rival Apple's market leading iPhone. Furthermore, Apple's policy of introducing an update on every product each year ensures increased stock value for investors. Investors can also look forward to an increase in dividends to be paid as Apple's staggering growth eventually slows down.
Competition aside, both companies continue to show strong profitability. There are major differences in EPS percentages of the two companies. The five-year EPS% of Apple outstrips Google by a long shot. Its lower P/S also shows unrecognized value potential on the stock market which would make it a preferred investment with all other variables taken into account. Apple and Google are both highly profitable, but Google has triumphed in its recent turn to take on Apple's iPhone and iPad. An Apple a day keeps Google at bay.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.