Apple's Market Cap Exceeds Google's

Lawrence Person writes "Mac Daily News was one of many Apple-followers to note that Apple Inc.'s market capitalization exceeded Google today. That means that the combined value of all Apple's outstanding shares of stock exceeded the combined value of all Google's outstanding shares of stock. Apple's stock is worth $157 billion and change vs. Google's $156 billion. Other companies Apple has surpassed in market cap include Cisco, HP, and Intel. Also, Apple is now worth 3 times the value of Dell Computer, despite Dell's founder and CEO declaring over a decade ago that if he ran Apple, he'd 'shut it down and give the money back to the shareholders.'"

Well let's just be honest here

Look at the price of iPod's, iPhone's, Mac Books, and their other products. They are selling them at an incredible profit. Not hard to see why apple is worth so much. As much as I hate apple I have to give them credit.

Re:Well let's just be honest here

The funny thing is that I've seen a lot of Mac fans cheering each quarter at the new record profits and at the same time get very defensive (or even offended) when someone suggests that Apple is selling their products for a lot more than it costs them to produce (yes, including fixed costs like R&D etc) compared to most of their competitors.

Re:Well let's just be honest here

Why would you hate Apple?

They have succeeded with products that people want to pay for.

They have contributed much to the open source community.

They have raised the bar for software/hardware technology in general.

They give developers a great platform for either open source development or Mac development without charging for developer tools.

They have created an exceptional market for independent developers to make REAL money writing for the iPhone.

I guess Apple is bad because they make money.

Mod this guy up to a ten.

Not too much of a shock, really.

Not really a shock.

One company's based on ubiquity and mindshare. The other's the same though less so, but actually retails physical items.

Re:Not too much of a shock, really.

google has hype and hype does not last.

Well then, it's a good thing Apple doesn't have a company image largely leveraged on hype.

Re:Not too much of a shock, really.

You're right, a company that sells services rather than goods can never be sustainable in the long run. That's why all power companies, telephone companies, cleaning companies, shipping companies, security companies, doctors, lawyers, and accountants all went out of business decades ago.

Re:Not too much of a shock, really.

hence the command: "DO NO EVIL!"

Google's motto is "Don't be evil". The difference is subtle but significant.

insane

How can a company with $24B in sales, $3B in profit, and $40B in cash and assets (2007 figures) have a market cap of $160B?

Re:insane

Because in today's economy, the worth of a company isn't what it is, but what it could be. Or rather, what analysts expect it to become.

And when analysts don't know jack about what they analyse and assess, you get a dot.com bubble.

Legs to stand on

Well, when you factor in a rapidly growing computer market (for Apple) with lots of growth potential left, a rapidly growing music market with lots of growth potential, a rapidly growing smartphone market, a rapidly growing mobile applications market...

And so on.

The thing of it is, Apple can still miss in a few categories and still have tremendous room for growth. They have many legs of stability holding up their table of success (I daresay that's the most awful metaphor you'll encounter this week).

The market rewards innovation, mindshare, and success. Apple has all three...

If after that you are still mystified - buy mutual funds.

Re:insane

How can a company with $24B in sales, $3B in profit, and $40B in cash and assets (2007 figures) have a market cap of $160B?

Most companies trade at a P/E much, much greater than 1. Historically, a P/E of 14 counts as "fair value", the point considered neither high nor low. For comparison, the average for the tech sector as a whole varies over time between 40 (at the height of the bubble) and 25 (currently in that range). Apple, at 35, falls a bit higher than its sector, but not so much that you'd call it extreme.

Re:insane

How can a company with $24B in sales, $3B in profit, and $40B in cash and assets (2007 figures) have a market cap of $160B?

Actually, Apple has $4.6 billion in profit.

Usually, market caps are much greater than yearly profits. If they were the same, then that would mean the investment could yield 100% per year in earnings, which is much higher than usual.

Right now, Apple would pay about 3% per year if they distributed all their earnings as dividends to investors. That figure isn't very high, so why is Apple's stock price (and market cap) so high?

Apple's stock price is high because wall street expects that Apple's profits will increase substantially in the future. The high stock price is based on anticipated future returns. If Apple were a "no-growth" company then it's market cap would be about half what it is.

(If you subtract the cash and assets from the market cap, you have $120B, which is what wall street thinks the risk-adjusted discounted net present value of all future earnings from Apple will be. Wall street expects those earnings to increase.)

I'm not sure I would invest in Apple at current prices. I'd rather put my money in intel or even microsoft.

The difference between Microsoft and Apple, is that Microsoft is seen as a NECESSITY for business, whereas Apple's products are seen as COOL. But cool is fleeting. I could see young people dropping their iPods 5 years from now the same way young people dropped acid-washed jeans, Doc Martens, and Walkmans. But businesses will never drop Wintel. Never.

I'm not sure that the risk of "suddenly uncool" has been adequately factored into Apple's share price.

Re:insane

How can a company with $24B in sales, $3B in profit, and $40B in cash and assets (2007 figures) have a market cap of $160B?

You used the 2007 figures of $3bn profit. The last figures are $4.6bn profit for the last year. That would be 50 percent growth, which is the key factor. Someone posted that you'd need 53 years to make $160bn if you make $3bn profit a year. Obviously we would need to subtract the $40B in cash and assets firsts, leaving $120bn. And divide by $4.6bn per year, making it 26 years which is about equivalent to 3.9% interest per year. But now we have to factor in the growth: If Apple managed the same growth for the next three years, then profit could triple and the 3.9% interest goes up to 12%. That is why Microsoft is valued so low: Because the market doesn't expect any growth anymore.

Re:insane

But even then: say I bought all of Apple's stock. If I relied on dividend alone, it would take me 53 years to make a profit on my investment. The only way I could profit in the short term is by trading the shares. It's devolved from a long-term profit projection into a pyramid scheme, IMO.

Re:insane

...it would take me 53 years to make a profit on my investment.

Given it's been 13 years (Nov-1995) since they last paid out a cash dividend it's going to take you a lot longer than that! They use the profit they make to re-invest and increase shareholder value. In the last 4 years alone the share-price has gone up by a factor of 10!

Seriously though, market valuations are very much based on market sentiment and prediction of future market sentiment based on projected company performance, i.e. how people "feel" and expect to "feel" about the company. It's messed up but its how the market seems to work.

It's better to look at relative performance of various companies to gauge whether prices are sane. Google's P/E (price/earnings) ratio (~30) is still high compared to other mature tech companies, which can be translated as meaning that Google is still expected to grow pretty quick, it's just that Apple (~35) is expected to grow slightly quicker.

Yes

The stock market is a mechanism by which monetary inflation is captured and transferred to the wealthy.

HTH
 

On the one hand ...

... it's amazing that a company like Google, that has been on the stock market for only a few years, can have a market capitalization about equal to that of a technology powerhouse like Apple.

On the other hand, is there anyone in their right mind who thinks that Google will be as valuable after 30 years as Apple has proven to be?

Re:On the one hand ...

On the other hand, is there anyone in their right mind who thinks that Google will be as valuable after 30 years as Apple has proven to be?

I'm unsure. It all depends on whether Google will continue to attract the best heads in the business and continue to be able to use their talents in the best way possible. If their profits slip significantly, shareholder drones might insist on cutting costs..

Then again, will Apple manage to maintain and refine their secret sauce when Steve Jobs is gone?

Re:On the one hand ...

Google provides services for free?

You've got the model backwards. *You* (and I) are the products Google is selling to advertisers. The freebies are just fluff to keep the product happy.

It's a fair model, and I sound more cynical than I actually am, but it's worth remembering in any dealings with companies like Google.

Re:On the one hand ...

You nailed it. Saying Google isn't a real business is like calling your local TV station a sham.

Roller coaster stock!

Seriously, if you bought Apple stock when it was first available and sold it all in the early 80's you would have been incredibly rich. Then, if you would have bought it all back in the 90's and sold it again today you would have replenished what you would have spent in the mean time.

Other market cap comparisons

Apple is also larger than oracle, sap, and cisco, and nearly as large as IBM. The only tech company larger than Apple by any significant margin is Microsoft; but even then, Apple is more than 60% as large as Microsoft and is growing considerably faster.

Re:Other market cap comparisons

If "smartphones" evolve to become the dominant computing platform over the next decade - as I think is likely - Apple has the potential to grow until it dwarfs Microsoft . . . and everybody else in the business. Looking at the market as it stands right now, Apple is in a position to become a sort of Microsoft on steroids over the next 10 years.

For years the tech press has been nattering on about "convergence" devices. Microsoft and Sony sank tens of billions of dollars into their game console business in part because they'd hoped their devices would become a ubiquitous digital hub, a move I always found questionable, since many households would never purchase a game machine and neither company has shown any skill in providing interfaces users enjoy working with.

Unfortunately for them, in the meantime increasing miniaturization and decreasing power requirements made it practical to produce full-fledged personal computers you could fit in your pocket. The iPhone is a tiny Macintosh with a built-in touchscreen that just happens to come with an integrated cell phone, and as such represents a far better bet as an ideal convergence device than a videogame machine.

Apart from the appeal of the cell phone as a convergence device, the other problem for the remaining players in the market, like Dell, HP and Microsoft, is that margins on dedicated personal computers are crashing. The same technology which makes it possible to cram a fully-functional (if not state-of-the-art) personal computer into your pocket has also slashed the price of even relatively high-end desktop PCs to well under $1000. At these low prices - you can get a fully capable desktop these days for around $300, and a laptop for $200 more - the devices are becoming commodities with little if any margin left. Low PC prices are also making it increasingly difficult for Microsoft to justify its outrageous software prices - on a PC loaded with Vista and MS Office, the cost of the Microsoft software can easily exceed the cost of the hardware itself.

Apple has the advantage of producing and selling both the hardware and the software. As such, the declining cost of hardware won't necessarily erode their product margins, or at least won't erode them as much as it will their competitors. They can also have the cost of the unit subsidized by the carriers themselves, allowing them to charge consumers more for their products than rivals like Dell and Microsoft, who either don't have access to such subsidization (Dell and their PCs) or who have to split it with the hardware manufacturers (MS and the smartphone makers themselves). While Apple's overall margins are likely to decrease as most customers migrate away from more expensive, traditional desktop and laptop PCs, their market share and overall number of units sold will explode. And their margin situation will still be vastly superior to that enjoyed by the likes of Dell and HP in the (dying) dedicated personal computer business.

Apple's other advantage is their focus on the customer experience. Whereas Microsoft has spent the past 20 years trying to lock customers inside the Windows jail, Apple's focus has been on trying to lure customers onto its Macintosh platform. It shows with the iPhone, which has an interface that puts the jumbled, klunky Windows smartphone interface to shame. The iPhone sports an interface consumers are willing to pay a substantial premium to enjoy.

I suspect at some point in the next 2-5 years Apple will move to make the iPhone a true PC. They'll make some kind of docking station available, so you can connect it to a full-sized monitor and keyboard and wired network when you're at home or at the office, the way laptop docking stations currently allow users to connect. It'll have the advantage of allowing corporations to replace not only their existing desktop and laptop PCs, but also their telephones and employee cell phones, since the iPhone will be able to function as all of these devices. Mobile users who require a keyboard and larger mon

Too be fair

A little over ten years ago, liquidating Apple would have made sense, whatever else I might think about the company and the products, Jobs is a fucking miracle worker, and we need more business leaders with his ability (if maybe not ethics).

Re:hardly a meaningful measure

A web business that has MICROSOFT shitting bricks.
If Microsoft had a magical "one-hit-kill" bullet that could eliminate just ONE major competitor, they'd pick Google, not Apple.