Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) each innovated its way to the top of the tech industry. This success brought huge returns to its long-term investors. While both companies are expected to continue to grow, determining which of these technology stocks can make the best investment comes down to an intangible factor: how well Apple and Google can capitalize on their innovations.
What attracts customers to each company
Although Apple abandoned the “think different” slogan years ago, this mindset has long defined the company and its innovations, leading to successful products like the iPhone. Today, their smartphones and other products seem poised to drive growth even further.
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Still, no one can deny Alphabet’s innovative prowess. His mastery of search and video sharing has spawned a lucrative Internet ad industry that drives most of the company’s revenue today.
Although they followed different paths, the two companies have become competitors in some areas, especially in mobile operating systems. Apple’s iOS and Alphabet’s Android dominate this part of the industry. According to Statcounter, Android controls about 72% of the market, while iOS claims to have just over 27%.
Leadership in innovation
Despite Android and its other endeavors, Alphabet still relies heavily on ads. The company now faces growing ad competition Facebook and Amazon. It retains about 29% of the U.S. digital advertising market, up from 32% last year, according to eMarketer. While this is a good reason for Alphabet to innovate and expand from Google, the search engine and related operations, including YouTube, still account for more than 99% of the company’s revenue. In addition, Google Cloud revenue is the only Google business split separately from Google’s ad-related parties, giving investors little visibility into which specific segments drive revenue growth.
In addition, the potential value not reflected in Alphabet’s finances should concern investors. The Financial Times estimated the value of Waymo, Alphabet’s autonomous car unit, at $ 30 billion – just under 13% of Alphabet’s $ 201.4 billion book value. That estimate doesn’t even address Sidewalk Labs, Verily Life Sciences, Calico, Fiber or the countless other Alphabet companies.
However, according to the company, all non-Google businesses generate less than 1% of the company’s revenue. Admittedly, the company may include revenue from some of the aforementioned divisions under Google’s umbrella. However, even in the best case scenario, the average investor has no visibility as to whether or how much these companies contribute to revenue and profits.
Apple has also innovated in recent years, especially with an iPhone 5G, Apple Silicon processors, its thriving subscription-based services business and the Apple Watch health monitoring capabilities. However, Apple reveals more explicitly than Alphabet how it monetizes innovation, dividing revenue from each of the various businesses and product lines it seeks. As a result, we know that all product categories, such as iPhone, iPad, services and wearables, currently increase revenue at double-digit rates.
Financial results
Giving investors more insight into the value that their different businesses create may explain why Apple far surpasses Alphabet in market value. Its valuation of $ 2.3 trillion is about 65% higher than Alphabet’s $ 1.4 trillion.
Admittedly, Alphabet has seen faster growth recently, mainly due to the 46% growth in Google Cloud revenue over the past 12 months. Alphabet reported more than $ 182.5 billion in net sales, an increase of about 13% over the previous 12-month period. This compares to Apple’s $ 294.1 billion in sales – much higher than Alphabet’s, but only a 10% increase over the same period. In addition, Alphabet posted net revenue growth of 17% against 11% for Apple.
However, Alphabet reported higher revenue growth in large part, cutting its sales and marketing expenses and slowing growth in research and development costs. In contrast, Apple’s operating expenses generally increased with increasing revenue, with research and development growing by more than 16%. Alphabet cannot reduce those costs forever and expect to remain competitive. Consequently, this is probably not as advantageous to Alphabet as it may seem.
In addition, the size of each company’s cash treasury points to Apple’s best long-term performance. Although Apple recently entered the debt market, it could survive without borrowing. Apple holds nearly $ 196 billion in cash and cash equivalents. Although Alphabet’s nearly $ 137 billion in cash and cash equivalents puts it in a similarly stable position, it still lags behind Apple in that area.
Investors have come to appreciate this advantage. Apple sells for 37 times the profit, compared to Alphabet’s P / E ratio of around 35. Still, Alphabet was historically the most expensive stock. Two years ago, Apple’s P / E ratio was about 13, while Alphabet’s was in the range of 25.
Rising demand for technology products in the midst of the pandemic, as well as new Apple technologies such as the iPhone 5G, Apple Watch and Apple’s silicon chip, have probably helped to increase demand for Apple shares. This multiple expansion has helped Apple to stock nearly double the returns on Alphabet’s stock in the past 12 months.
AAPL data by YCharts
Why I choose Apple
Both companies foster innovation and maintain sufficient cash to control their destinations. However, although Alphabet invests heavily in new technologies, it either did not monetize its inventions well or at least refused to communicate these results to investors.
On the other hand, Apple capitalized on the iPhone, Apple Watch and other inventions and reported these results more explicitly. This transparency makes Apple an easier choice. Until Alphabet finds out how to unlock and reveal more of its potential value, I believe investors should continue to bite Apple.