The comparisons between Google and Apple aren't as apples-to-apples as everyone in the media seems to think. If we're talking about the future of these companies, and their earning power, they are situating themselves very differently. Apple is really a consumer electronics company, Google is an artificial intelligence company. And investors think more money will be in the future of AI instead of consumer hardware and software, so even though Google's earnings are smaller than Apple's, the future earning power is so much more.
If Apple starts going faster on AI then I think it will be very interesting between these two companies.
I absolutely agree that comparing Google and apple is silly. But calling Google an "artificial intelligence" company is just feeding another buzzword into the fire.
> investors think more money will be in the future of AI instead of consumer hardware and software
No, first you are mistaking a bet on a single company for a bet on an industry. The obvious counterexamples being that there are no shortage of wannabe AI companies valued orders of magnitude lower than Apple, that doesn't mean wall street thinks devices beat ai as an industry gold mine.
Google is valued highly today because they print money today. They print money because of search and advertising. They are really good at this and that's why their market cap exceed's Apple's today.
These prices are not remotely rational. There's no serious investor that thinks Apple is going to shut the lights off inside 7 years which is what the current 'market cap' would tell you.
Google has great AI people - arguably more than anywhere else - but the bulk of the company is not based on AI. I'm a former Google employee, and up until a few years ago, most of the company was very skeptical of machine learning. Many people still are. I left because my machine learning project was canceled - a manager had an older solution that didn't use machine learning, and he didn't want his pet project to be replaced (even though it had worse performance and was much harder to use), so we were canceled while about fifty lines of code away from launching. Other parts of the company may be different, but in our product area AI was a minus, not a plus.
No need to make it about Apple vs Google or some newspaper narrative. In a world with negative short rates, money essentially becomes a "bad" (or negative good). Ceteris paribus, companies who deliver a lot of it today or in the immediate future will be valued less than those with cash flows farther out.
I still think the market is making a mistake here, in that the real difference between Google's and Apple's investment projects is not in their nature ("moonshot" vs "mundane") but in their PR. Google just talks more about them.
Given that investors think that Google's stream of cash flows is weighted towards the future and Apple's to the present, though, it makes sense that in the current rate environment valuations are as they are. See also Facebook, Amazon, or Netflix.
No need for grand narratives about the relative merits, product and management philosophies, or management personalities.
That said, I disagree with the market and am betting this is a bubble that will pop soon.
That's an interesting take, because for many years I'm pretty sure the largest portion of their income was from advertising revenue. That makes them an ad firm. Yeah they've diversified, but let's be honest, they're in sales straight up first and foremost.
Both companies will struggle for the kind of revenue growth Wall Street is looking for. Ad sales account for 99% of Google revenue, with speculative ventures generating less then $500 million. It's all about finding products and services that people are willing to part with cash.
I feel like this comparison of the two started during the handset wars. If you'll recall they were very chummy companies before that with Eric Schmidt sitting on both boards. With the handset wars cooling down a bit I think the comparisons are becoming a lot less apt.
Also apple only spends about 3% of revenue on R&D. Google spends about 15% (and so does ms) if i remember correctly. I think at some point this is going to show. If apple isn't careful they might end up making the pretty but dumb phones of tomorrow.
AI had big VC run in the 1980s. At that time it focused on expert stems and logic computing. Now the emphasis is on big data and deep learning neural nets. Google can afford to nuture a technology for a decade while VCs wont.
I agree that they aren't same but I doubt if Apple is even in the same league as Google when it comes to AI.
Apple is a product company that makes iOS+Hardware for profit and also seeks rent to access this platform. Google is synonymous with search/advertising which is fancy word for media. For google that media comes first and platform monopoly comes second. That is why Google continues to offer all its services on iOS despite virtually owning Android.
For every product that Apple builds in future its success will be like a toss of a coin (of course biased). Google succeeds no matter which platform succeeds.
Both are at "peak margin," but Google's margins will fall slower than Apple's. Hardware margins are notoriously hard to maintain, Apple is the outlier, and it can't last forever.
Google is not an AI company. Google is a "knowledge" company. (Most of AI-like stuff from Google is actually a software that extracts relevant knowledge from a big database.)
Google makes money from that crazy amount of information they have available, albeit we must admit that thus far, they haven't been able to turn a real business from most of it: the real profitable way they use that knowledge is to serve us ads.
Nerds have known for years that Google is really an AI company, but do investors really see things that way yet? The stock didn't go up with the announcement of AlphaGo, though that could just be because they think that particular AI work won't give Google any competitive advantage in future revenue...
It's interesting to that it took this long, just considering the utility of each company. If Apple disappeared tomorrow I'd be moderately inconvenienced, I'd have to pick up an Android handset instead of my iPhone and maybe set up some new podcast feeds. If Google disappeared the world would screech to a halt.
Paid clicks up 31% overall, on Google’s own sites, up 40%. That's a bit concerning to me, especially when you consider:
a) That growth is outpacing internet traffic growth, and has for many years now. Internet traffic CAGR is 23%[1]
b) The shift from desktop to mobile should have the effect of reducing clicks.
c) Since some of the growth is video, I would expect a decrease in click growth related to this as well. Video adds to bandwidth growth pretty directly. Click growth would be less direct.
Sergey and Larry, at least at one time, might have expressed concern:
"The goals of the advertising business model do not always correspond to providing quality search to users"[2]
People were losing their minds over the fact that iPhone shipments slightly declined. If you look at the year over year growth (excluding the massive bump for iPhone 6), it would show that AAPL is still ahead of the growth curve.
Apple also started paying quarterly dividends in 2012[1]. Whereas, Google does not pay out dividends[2]. Apple's annualized dividend yield is 2.2% (for comparison, Microsoft's is 2.6%[3]).
Very impressive. I remember being a young teenager when Google first went public, and around the same time my parents were looking at investing a moderate amount of money (around 10K, if I remember correctly) in the stock market. I suggested they buy stocks in Google, they didn't take my advice, which I don't blame them for as taking investment advice from a 14 year old typically doesn't end well.
It will be very interesting to see where Alphabet/Google go in the next 10 years.
As an American I think it's pretty badass that something like 8 or 9 of the top 10 most valuable companies in the world are all American. I'm not sure if that means we're doing something right, but it's still pretty cool for a moment.
Both tremendous companies. I actually wish Apple would deploy some of its know-how and capabilities a little more broadly. Not everything has to be an immediate $20 billion opportunity.
Because Apple sells fashion products whereas Alphabet consists of a wide variety of companies with Google itself mostly making money with advertising? Other than having overlapping categories in their product and service portfolio, I have no idea how the two can be compared.
The elephant in the room nobody seems to notice is, they have so much data that they can actually look ahead of curve for any industry or tech, and so can have very good tactical advantage, and being open to jump in to any tech, they can steer much easily then the counterparts.
Kudos to Google. I'm happy for them. But it's also worth pointing out that Market Cap is a horrendous way to measure how "valuable" or "powerful" a company is.
Companies A and B both want to raise $10B to fund a new investment opportunity. A decides to issue corporate bonds, because it doesn't want to dilute its shareholders. B decides to issue new equity instead, because they feel that their company stock is actually overvalued at the moment. Net result: A's market cap remains the same. B's market cap increased by $10B. No difference in future projected earnings/revenue between the 2 of them, but B now leads A in market cap.
Another scenario: Companies A and B both made $20B in profits over the past year. Company A decides to keep $5B in the bank, and returns the remaining $15B to their shareholders. Company B hoards all $20B, and doesn't do anything with it besides letting it sit in the bank. Company A's market cap drops by $15B because of their decision to issue dividends, and company B's market cap now leads A, just because they decided to sit on their pile of money.
If you want to judge how powerful a company is, look at its revenue, profits or total assets. If you want to judge how successful a company is, look at its investor returns. Market cap isn't really all that meaningful a metric to judge a company by.
In both cases you describe, the company with the higher cap is the more "powerful" company though. In example one, they have a lot more control of their destiny since they have debt and not more shareholders.
In number two they have more control because if an opportunity comes up that costs say 10 billion, Company B can act on that and Company A cannot.
> A decides to issue corporate bonds, because it doesn't want to dilute its shareholders. B decides to issue new equity instead, because they feel that their company stock is actually overvalued at the moment. Net result: A's market cap remains the same. B's market cap increased by $10B. No difference in future projected earnings/revenue between the 2 of them, but B now leads A in market cap.
Er, there is a difference: A added a bunch of future debt-service expense that B didn't; presumably the expansion that each A & B funded has future expected revenue, but A's future expenses cut into that, while B, with equity financing, didn't add expenses. So, B's actual value should be greater than A's, which the market cap in your scenario reflects.
There are good criticism of market cap as value, but yours isn't one of them.
Scenario 1: B's existing public equity and future EPS is diluted by the new issue, and the market cap should remain similar.
Scenario 2: A's share price now has a dividend stream implying future returns, which will increase the future value of the shares. Yes, the market cap will drop by $15B on the dividend date, but two similarly performing companies, one paying predictable dividends, and one not, should already be priced differently. I'll concede that the modern practice of just not paying dividends complicates this a bit, and biases the pricing toward pure speculation.
You can also use enterprise value (equity+debt-cash) to solve the two issues you mention. By the way, using that metric Google has been already ahead of Apple in the past.
Yes. It's because of the idiotic way the Dow formula works. The Dow is a price weighted index. To compute the value of the Dow, you sum the per-share prices of the constituents and divide by a magic divisor. So a $50 move in GOOG (~6.6% change) and a $50 move in AAPL (50% change) would have the exact same impact on the value of the index. The kludgey solution to this problem is just to not incorporate high priced stocks into the index.
Incidentally this is why when you hear anyone quoting the Dow you can tell immediately that they are either clueless or an innumerate moron.
The Dow is useless as a stock index. It's composed of only 30 stocks, so a big move in one of them (like when Caterpillar announced a restructuring charge and its stock tanked by 20%) will be reflected in the index even if it has nothing to do with the broader market. Also, the index tends to skew toward older blue-chips (hence the name "Dow Jones Industrial Average), so it doesn't reflect a lot of what's actually going on in the market. There's not a single Internet stock on it, for example: the "technology" sector is represented by Apple, IBM, Cisco, Intel, and Microsoft, and Amazon/Google/Facebook/even Ebay & Yahoo are conspicuously absent.
Anybody with any sort of financial literacy uses the S&P 500 as the proxy for the U.S. stock market. Even that has its problems, but it's a lot closer to meaningful than the Dow is.
No, but who would it replace? Apple was only added last year, and there isn't that much turnover on it. There currently are no pure online companies on there, and despite the role of tech in today's world, only a few companies in the space (MSFT, Cisco, Apple, IBM)
According to Google Finance, it appears that Alphabet has a market capitalization of $517B, which is far different than the $558B quoted in the article. This does not appear to be a temporary fluctuation. https://www.google.com/finance?q=NASDAQ%3AGOOGL
Am I missing something? Based on the current market cap numbers on Google Finance, Apple is still higher than Alphabet.
This is based on after-hours trading, where Alphabet is up 9%+ after an earnings beat. The marketcap that you see in Google Finance is calculated based on the price at the end of the trading day, not after-hours trading.
Microsoft reached an intraday high share price of $119.94 in December 1999. With 5,160,024,593 outstanding shares, it had a market capitalization of $618.9 billion.
Well, abusing their search dominance among other things like making ads indistinguishable from organic results and paid placement on verticals like shopping/hotels etc. was eventually going to pay out.
More details on how Google manipulated search rankings manually to make more money:
>A previously undisclosed report by staffers at the Federal Trade Commission reveals new details about how Google Inc. manipulated search results to favor its own services over rivals’, even when they weren’t most relevant for users.
>In a lengthy investigation, staffers in the FTC’s bureau of competition found evidence that Google boosted its own services for shopping, travel and local businesses by altering its ranking criteria and “scraping” content from other sites. It also deliberately demoted rivals.
>For example, the FTC staff noted that Google presented results from its flight-search tool ahead of other travel sites, even though Google offered fewer flight options. Google’s shopping results were ranked above rival comparison-shopping engines, even though users didn’t click on them at the same rate, the staff found. Many of the ways Google boosted its own results have not been previously disclosed.
>One way Google favored its own results was to change its ranking criteria. Google typically ranks sites based on measures like the number of links that point to a site, or how often users click on the site in search results.
>But Marissa Mayer, who was then a Google vice president, said Google didn’t use click-through rates to determine the ranking for its own specialized-search sites, because they would rank too low, according to the staff report
>Instead, Google would “automatically boost” its own sites for certain specialized searches that otherwise would favor rivals, the FTC found. If a comparison-shopping site was supposed to rank highly, Google Product Search was placed above it. When Yelp was deemed relevant to a user’s search query, Google Local would pop up on top of the results page, the staff wrote.
>Other regulators have found similar practices. European antitrust authorities in 2013 said Google had a different, “specialized” search algorithm for ranking its own content.
>To bolster its own listings, Google sometimes copied, or “scraped,” information from rival sites. According to the FTC report, Google copied Amazon’s rankings of how well products were selling, then used that information to rank its results for product searches. Amazon declined to comment.
>While Google promoted its own results, it sometimes demoted rivals, the FTC staff found. For example, Google compiled a list of comparison-shopping sites and “demoted them from the top 10 web results,” staff wrote. According to the report, Google users in tests didn’t like the changes; only after Google tweaked its search algorithm at least four times, and changed the ranking criteria, did the new results get “slightly positive” feedback, the staff said.
>Google’s efforts paid off, the FTC found. It said Google’s maneuvers reduced Web traffic to rivals, and increased traffic to Google sites.
A few months ago. They re-organized the structure so that Alphabet became the parent company and Google became the subsidiary. Larry Page heads Alphabet while Sunder Pichai heads Google.
Some of the companies purchased by "Google" became subsidiaries of Alphabet as well.
[+] [-] cryptoz|10 years ago|reply
If Apple starts going faster on AI then I think it will be very interesting between these two companies.
[+] [-] jonesb6|10 years ago|reply
[+] [-] Steko|10 years ago|reply
No, first you are mistaking a bet on a single company for a bet on an industry. The obvious counterexamples being that there are no shortage of wannabe AI companies valued orders of magnitude lower than Apple, that doesn't mean wall street thinks devices beat ai as an industry gold mine.
Google is valued highly today because they print money today. They print money because of search and advertising. They are really good at this and that's why their market cap exceed's Apple's today.
These prices are not remotely rational. There's no serious investor that thinks Apple is going to shut the lights off inside 7 years which is what the current 'market cap' would tell you.
[+] [-] apsec112|10 years ago|reply
Google has great AI people - arguably more than anywhere else - but the bulk of the company is not based on AI. I'm a former Google employee, and up until a few years ago, most of the company was very skeptical of machine learning. Many people still are. I left because my machine learning project was canceled - a manager had an older solution that didn't use machine learning, and he didn't want his pet project to be replaced (even though it had worse performance and was much harder to use), so we were canceled while about fifty lines of code away from launching. Other parts of the company may be different, but in our product area AI was a minus, not a plus.
[+] [-] HSO|10 years ago|reply
I still think the market is making a mistake here, in that the real difference between Google's and Apple's investment projects is not in their nature ("moonshot" vs "mundane") but in their PR. Google just talks more about them.
Given that investors think that Google's stream of cash flows is weighted towards the future and Apple's to the present, though, it makes sense that in the current rate environment valuations are as they are. See also Facebook, Amazon, or Netflix.
No need for grand narratives about the relative merits, product and management philosophies, or management personalities.
That said, I disagree with the market and am betting this is a bubble that will pop soon.
[+] [-] 6stringmerc|10 years ago|reply
That's an interesting take, because for many years I'm pretty sure the largest portion of their income was from advertising revenue. That makes them an ad firm. Yeah they've diversified, but let's be honest, they're in sales straight up first and foremost.
[+] [-] bradshaw1965|10 years ago|reply
[+] [-] jdoliner|10 years ago|reply
[+] [-] petke|10 years ago|reply
[+] [-] peter303|10 years ago|reply
[+] [-] tn13|10 years ago|reply
Apple is a product company that makes iOS+Hardware for profit and also seeks rent to access this platform. Google is synonymous with search/advertising which is fancy word for media. For google that media comes first and platform monopoly comes second. That is why Google continues to offer all its services on iOS despite virtually owning Android.
For every product that Apple builds in future its success will be like a toss of a coin (of course biased). Google succeeds no matter which platform succeeds.
[+] [-] partiallypro|10 years ago|reply
[+] [-] HeavyStorm|10 years ago|reply
Google makes money from that crazy amount of information they have available, albeit we must admit that thus far, they haven't been able to turn a real business from most of it: the real profitable way they use that knowledge is to serve us ads.
[+] [-] whitegrape|10 years ago|reply
[+] [-] Dolores12|10 years ago|reply
[+] [-] percentcer|10 years ago|reply
[+] [-] tyingq|10 years ago|reply
a) That growth is outpacing internet traffic growth, and has for many years now. Internet traffic CAGR is 23%[1]
b) The shift from desktop to mobile should have the effect of reducing clicks.
c) Since some of the growth is video, I would expect a decrease in click growth related to this as well. Video adds to bandwidth growth pretty directly. Click growth would be less direct.
Sergey and Larry, at least at one time, might have expressed concern:
"The goals of the advertising business model do not always correspond to providing quality search to users"[2]
[1] http://www.cisco.com/c/en/us/solutions/collateral/service-pr...
[2] http://infolab.stanford.edu/~backrub/google.html
[+] [-] newman314|10 years ago|reply
See https://imgur.com/vO0kPEy
* Apple's quarterly revenue: $75.9bil
* Apple's quarterly profit: $18.4bil
* Google's quarterly revenue: $21.3bil
* Google's quarterly profit: $6.8bil
In sheer numbers, Apple's total profit is quite a bit more than Google's so there's that.
[+] [-] pearlsteinj|10 years ago|reply
[0]https://abc.xyz/investor/news/earnings/2015/Q4_google_earnin...
[+] [-] stephengoodwin|10 years ago|reply
[1] http://www.streetinsider.com/dividend_history.php?q=AAPL
[2] http://www.streetinsider.com/dividend_history.php?q=GOOG
[3] http://www.streetinsider.com/dividend_history.php?q=MSFT
[+] [-] aqzman|10 years ago|reply
It will be very interesting to see where Alphabet/Google go in the next 10 years.
[+] [-] bane|10 years ago|reply
[+] [-] pbreit|10 years ago|reply
[+] [-] dangoor|10 years ago|reply
[+] [-] maerF0x0|10 years ago|reply
[+] [-] metaphorm|10 years ago|reply
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] pluma|10 years ago|reply
I mean, Alphabet has military robots.
[+] [-] hyperbovine|10 years ago|reply
[+] [-] iamgopal|10 years ago|reply
[+] [-] whack|10 years ago|reply
Companies A and B both want to raise $10B to fund a new investment opportunity. A decides to issue corporate bonds, because it doesn't want to dilute its shareholders. B decides to issue new equity instead, because they feel that their company stock is actually overvalued at the moment. Net result: A's market cap remains the same. B's market cap increased by $10B. No difference in future projected earnings/revenue between the 2 of them, but B now leads A in market cap.
Another scenario: Companies A and B both made $20B in profits over the past year. Company A decides to keep $5B in the bank, and returns the remaining $15B to their shareholders. Company B hoards all $20B, and doesn't do anything with it besides letting it sit in the bank. Company A's market cap drops by $15B because of their decision to issue dividends, and company B's market cap now leads A, just because they decided to sit on their pile of money.
If you want to judge how powerful a company is, look at its revenue, profits or total assets. If you want to judge how successful a company is, look at its investor returns. Market cap isn't really all that meaningful a metric to judge a company by.
[+] [-] jedberg|10 years ago|reply
In number two they have more control because if an opportunity comes up that costs say 10 billion, Company B can act on that and Company A cannot.
[+] [-] dragonwriter|10 years ago|reply
Er, there is a difference: A added a bunch of future debt-service expense that B didn't; presumably the expansion that each A & B funded has future expected revenue, but A's future expenses cut into that, while B, with equity financing, didn't add expenses. So, B's actual value should be greater than A's, which the market cap in your scenario reflects.
There are good criticism of market cap as value, but yours isn't one of them.
[+] [-] gefh|10 years ago|reply
[+] [-] kgwgk|10 years ago|reply
[+] [-] SilasX|10 years ago|reply
[+] [-] minimax|10 years ago|reply
Incidentally this is why when you hear anyone quoting the Dow you can tell immediately that they are either clueless or an innumerate moron.
[+] [-] nostrademons|10 years ago|reply
Anybody with any sort of financial literacy uses the S&P 500 as the proxy for the U.S. stock market. Even that has its problems, but it's a lot closer to meaningful than the Dow is.
[+] [-] bdcravens|10 years ago|reply
[+] [-] wodenokoto|10 years ago|reply
[+] [-] csomar|10 years ago|reply
Apple Marketcap: $539B
Google Marketcap: $537B
Microsoft Marketcap: $435B
Facebook Marketcap: $320B
Total of these big 4: $1.8 Trillion
Who said the bubble is going to burst this year?
[+] [-] donohoe|10 years ago|reply
[+] [-] rjvir|10 years ago|reply
Am I missing something? Based on the current market cap numbers on Google Finance, Apple is still higher than Alphabet.
[+] [-] tinkerrr|10 years ago|reply
[+] [-] ramidarigaz|10 years ago|reply
[+] [-] tosseraccount|10 years ago|reply
[+] [-] wangii|10 years ago|reply
then what? what next?
[+] [-] jfuhrman|10 years ago|reply
More details on how Google manipulated search rankings manually to make more money:
From http://www.wsj.com/articles/how-google-skewed-search-results...
>A previously undisclosed report by staffers at the Federal Trade Commission reveals new details about how Google Inc. manipulated search results to favor its own services over rivals’, even when they weren’t most relevant for users.
>In a lengthy investigation, staffers in the FTC’s bureau of competition found evidence that Google boosted its own services for shopping, travel and local businesses by altering its ranking criteria and “scraping” content from other sites. It also deliberately demoted rivals.
>For example, the FTC staff noted that Google presented results from its flight-search tool ahead of other travel sites, even though Google offered fewer flight options. Google’s shopping results were ranked above rival comparison-shopping engines, even though users didn’t click on them at the same rate, the staff found. Many of the ways Google boosted its own results have not been previously disclosed.
>One way Google favored its own results was to change its ranking criteria. Google typically ranks sites based on measures like the number of links that point to a site, or how often users click on the site in search results.
>But Marissa Mayer, who was then a Google vice president, said Google didn’t use click-through rates to determine the ranking for its own specialized-search sites, because they would rank too low, according to the staff report
>Instead, Google would “automatically boost” its own sites for certain specialized searches that otherwise would favor rivals, the FTC found. If a comparison-shopping site was supposed to rank highly, Google Product Search was placed above it. When Yelp was deemed relevant to a user’s search query, Google Local would pop up on top of the results page, the staff wrote.
>Other regulators have found similar practices. European antitrust authorities in 2013 said Google had a different, “specialized” search algorithm for ranking its own content.
>To bolster its own listings, Google sometimes copied, or “scraped,” information from rival sites. According to the FTC report, Google copied Amazon’s rankings of how well products were selling, then used that information to rank its results for product searches. Amazon declined to comment.
>While Google promoted its own results, it sometimes demoted rivals, the FTC staff found. For example, Google compiled a list of comparison-shopping sites and “demoted them from the top 10 web results,” staff wrote. According to the report, Google users in tests didn’t like the changes; only after Google tweaked its search algorithm at least four times, and changed the ranking criteria, did the new results get “slightly positive” feedback, the staff said.
>Google’s efforts paid off, the FTC found. It said Google’s maneuvers reduced Web traffic to rivals, and increased traffic to Google sites.
[+] [-] mark-r|10 years ago|reply
[+] [-] pavanky|10 years ago|reply
Some of the companies purchased by "Google" became subsidiaries of Alphabet as well.