Apple or Microsoft, which is cheaper?

June 10, 2010 by · 2 Comments
Filed under: Finances, Technology 

It is all over the news that Apple (AAPL) surpassed Microsoft (MSFT) market capitalization last week becoming the largest tech company from that metric perspective.  The question is which one is more expensive?

Assume you have $500 to invest and you are trying to decide which one is a better bet.  Let’s see.  On June 10th, Microsoft opened near $25 and Apple near $250.  So you could buy 20 MSFT or 2 AAPL.  So what are you really buying with your hard earned bucks?  Based on the prior 12 months and latest financial statements these are the numbers (rounded):

AAPL:  revenue $51B, Net Income $10.7B, Cash and Short term investments $23B, and a market cap of $227B (908 M outstanding shares).

MSFT: revenue $59B, Net Income $17.2B, Cash and ST investments $39B with a market cap of $218B (8720 M outstanding shares).

So if you buy 2 shares of Apple your $500 buy you $112 in revenue, $23.50 in NI, and $50.70 in cash.  Microsoft’s 20 shares are $135.3 in revenue, $39.4 in NI, and $89.4 in cash.  In other words, picking one metric, let’s say cash,  Microsoft is trading at 5.6 times cash, Apple at 9.8 times cash.  That is 1.76 times more expensive!

Now, let me throw Google (GOOG) into the mix, just for kicks:  Google was trading at around $480 with a market cap of $115B (240M shares).  Revenues of $25B, Net Income of $7.1B, Cash $26B.  You can buy 1.04 GOOG, meaning $108 in revenue, $30.8 NI, and an impressive $113 in cash (4.44 times cash).

So you tell me which one is more expensive?  I know, I know, this is based on past results and does not factor in growth potential, investor’s sentiment, cult followers, and other factors.  But for the same reason it clearly paints a picture of which company is more favored by investors and which one is less.

Consider one last point:  Microsoft hit an all time high of $58.37 on December 31, 1999, Google $724.80 on December 14, 2007, and Apple hit $272.40 on April 26, 2010.  Investor’s favoritism has been shifting over time.  What’s next for all these three?  If I knew, I wouldn’t be blogging about it but it is definitely interesting behavior of 3 of the most traded stocks.

Quoting Scott Adams, the creator of Dilbert, “I remind you to ignore me”.  By no means this is an endorsment to invest in any of these companies.  You, my fellow reader (singular) make your own judgment.

Enjoy.

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In Search for Search Leadership

July 2, 2009 by · Leave a Comment
Filed under: Business, Technology 

Microsoft launched Bing in June as a re-branded, fresher looking version of Live Search. This is one more of the so far fruitless efforts to make money in the fast growing search industry. Last year, right before the economic meltdown, a bid to acquire Yahoo for $40B failed (Balmer, Microsoft’s CEO is probably thankful for that now.) Bing launched as expected with a huge marketing campaign (maybe actually clever) that goes after Google, so far #1 seated and far, far from the other 2. Is the investment worth it and how long will it take to pay back?

According to Internet data firm StatCounter, Microsoft gained a point of market share of US searches right after its launch in June 3rd to around 8.23%. At the same time Google’s declined slightly (0.24% to 78.48%) while Yahoo remained almost flat at 11.04% . Interestingly, during the first week, Bing accounted for 92% of searches to quickly stabilize at around 8.23%. Interesting payback for an estimated $3B investment (so far) in search by the software giant. Although it might trend as a positive market share growth it is not clear how long will it take to move the needle on Microsoft’s earnings. According to Yahoo finance (interesting choice of source) was a staggering $17B in fiscal 2008. Compared this to a mere (yeah, right) $4.5B of Google in its fiscal 2008 it seems like a battle not only tough to win, but the prize may not be as expected, especially for share holders.

Think about it. Google’s 78% of the market represents less than $4B in earnings. If Microsoft reaches, lets say 10% (1/8 of Google’s), and assuming the same cost structure it will earn $500M (or a 3% earnings increase). Yeah, yeah, I know what you’re thinking. These numbers are bogus and the bet is on growth. Sure, but to make a decent move on MSFT’s earnings, let’s say 10-12% (or $2B) they will need 4 times more earnings, which will mean a significant market share gain over Google and a never seen before growth (the market doubling and their share doubling doesn’t seem plausible). If everything else remains constant, that will mean $2 -$2.5 share price increase. Whereas a market doubling and a 10% share loss for Google will mean, well a 50% share price increase (yes $200/share). Sure more bogus numbers since MSFT is trading at <14 times earnings and Google at almost 30 so the market has already factored in a faster growth for the latter. It still illustrates the point that Google is better positioned to profit from search than Microsoft even if Balmer succeeds with Bing. Keep in mind that updates on both Yahoo and Google are expected in 2009.

This brings me to the real point I wanted to make. We all tried Bing. A gorgeous site, looks great and it works great. But the results are the same if not worse as with the other two. So as creatures of habit, like all geeks and online shoppers are, we all went back to our comfort zone. We will probably keep trying Bing a couple of times and it will probably succeed in taking on Yahoo’s #2 spot. But it will take a whole bunch of billions for people to conjugate Bing. I don’t know about you , but being “googled” is a lot better than being “binged”.

Enjoy.

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Stocks Suck!

May 1, 2009 by · Leave a Comment
Filed under: Finances 

moz-screenshot-11

We hear all the time that investing in stocks is the best way to grow your money in a passive way.  Over the long run stocks have always outperformed other asset classes.  hmm…  let’s see:  The Dow Jones Industrial Average (DJIA) closed at around 380 points on August 1, 1929 with a volume of some 3.8 million shares.  80 years seem like long term, right? $1000 invested in the DJIA on August 1, 1929 will be worth today, May 1, 2009 $21, 529 with a volume of around 10 billion shares.  Pretty good.  If we assume a 3% inflation rate for 80 years, it is equivalent to $2029 in 1929 dollars.   The chart on top shows our inflation adjusted grand invested in August 1929, of course backwards.  We doubled our money in 80 years! It doesn’t seem like a lot, now does it?

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