Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are the two largest technology companies in the world by market value and rivals in a number of technology segments. These two companies used to be strong partners when Microsoft Corporation (NASDAQ:MSFT) was the dominant force in the technology market. In fact, Google’s manager Eric Schmidt used to sit on Apple’s board before relations soured between the two companies. Now these companies compete fiercely with each other in the mobile devices market, which is growing at a furious pace. Now, with Microsoft Corporation (NASDAQ:MSFT) relegated to 3rd place, Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are fighting for the pole position. Let’s take a look at how that battle is going.
1. New product introduction – Apple has concentrated on fewer products but has completely changed the technology landscape with those products. Apple has a number of new products lined up for introduction in the coming year. Some of these products are the iWatch, a cheaper iPhone, iTV, a streaming music service, etc. Google keeps on coming up with new products, but the only major one coming up is the Google Glass.
3. Hardware – Apple is definitely better with its iPads and iPhones–Google is still finding its feet with the recent Motorola acquisition.
4. Government Regulation – Google Inc (NASDAQ:GOOG) is under heavy pressure from governments around the world due to concerns over privacy and monopolistic behavior. Google was recently forced to concede to the French government over Google News. It was forced out of China and is now facing strong scrutiny by Europe. Apple Inc. (NASDAQ:AAPL), on the other hand, has not faced the same pressures.
5. Competitive barriers – Google has high barriers in its core Internet search busines,s while Apple is facing huge competition in both iPads and iPhones. Meanwhile, Apple is facing increased competition in its core smartphone and tablet markets. While Apple has a superior product and a fanatic following, the sheer amount competition means that Apple Inc. (NASDAQ:AAPL) will find it difficult to grow quickly in these areas.
6. Valuation – Apple is almost 50% cheaper than Google – Apple is trading at a very cheap valuation with a forward P/E of just ~8x. The reason for this is concerns about Apple’s prospects, given the strong competition in its core segments. Google Inc (NASDAQ:GOOG), on the other hand, is expensive compared to the rest of the mega-cap technology stocks. Google trades at a forward P/E of ~15x, which is almost double than that of Apple Inc. (NASDAQ:AAPL), and Google’s P/S multiple of 5x is more than two times Apple’s P/S multiple of 2.4x. Apple has a market capitalization of $394 billion compared to Google’s $257 billion. Google’s search is still growing in double digits, while its other services like Google Map and Youtube are ramping up.
7. Stock performance – Google has heavily outperformed Apple in the last year, which makes Apple more attractive. Google has given a return of ~25% compared to the ~33% loss given by Apple Inc. (NASDAQ:AAPL). On the other hand, Apple has heavily outperformed Google Inc (NASDAQ:GOOG) over a longer timeframe. In the last 10 years, Apple has given an astounding ~6000% return compared to the ~622% return given by Google.
8. Balance Sheet – Apple has a stronger balance sheet and larger free cash flows, though to be fair both companies have a rock solid balance sheet with huge amounts of cash. They are also generating massive amounts of cash flow each quarter. Google has ~$42.5 billion in net cash on its balance sheet, while Apple has the biggest cash chest in the corporate world with more than ~$140 billion in net cash. Apple Inc. (NASDAQ:AAPL) generated $40 billion in FCF in 2012, while Google Inc (NASDAQ:GOOG) managed $13 billion in FCF. Both the companies are amassing massive amounts of cash each quarter.
Summary
Both Google and Apple are terrific companies and have performed extremely well over the last decade. The breadth and depth of their offerings make them each a formidable force in the world today, with almost everyone using a product or service made by these companies. At the current stock price, I like Apple Inc. (NASDAQ:AAPL) more than Google. However, I would not sell Google Inc (NASDAQ:GOOG), as I think it is an excellent company run by a very competent management team that is not afraid to take huge risks.
The article Why Apple Is a Better Buy than Google originally appeared on Fool.com and is written by Sneha Shah.
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