Technology stocks have ruled for the past two decades. Big tech companies started the Internet decade as startups and have grown to several trillion dollars. FAANG shares have gained prominence over the past few years. FAANG stands for Facebook, Inc. (FB), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Netflix, Inc. (NFLX) and Google Alphabet Inc. (GOOGL). These companies have achieved unprecedented market capitalization heights thanks to their robust business models, strong revenues and market dominance.
AAPL and GOOGL have performed exceptionally well over the past year. They have updated and expanded their offerings to meet changing consumer demand in the face of the pandemic and to promote a “new normal” lifestyle and work. While many investors are now moving from high-priced tech stocks to high-quality non-tech stocks that are expected to thrive with the economic recovery, the current wave of artificial intelligence (AI), 5G networks, cloud computing and virtual reality products could be revolutionary in the coming years and help. FAANG shares continue to rise.
While the demand for next-generation AAPL products and services has been impressive over the years, GOOGL is at the forefront of shaping the future with its search and cloud offerings. Both stocks have generated significant gains over the past 10 years. While AAPL generated 965.8% profit over the period, GOOGL gained 777.7%. However, in terms of year-to-date performance, GOOGL is the clear winner with a 33.7% return over negative AAPL returns.
But let’s take a closer look to find out which of the two has the best prospects this year:
Recently, AAPL has been actively innovating its product line. The early reaction to the new AAPL products, fueled by the launch of the first 5G-capable iPhone line last year, was overwhelmingly positive. On April 30, the company expanded its Find My ecosystem with the launch of AirTag, an iPhone accessory that provides a private and secure way to easily find the items most important to humans. In addition, AAPL recently began taking orders for its new iMac and iPad Pro, which run on its own M1 processor, as well as the next generation Apple TV 4K.
Mobile operator Vodafone Group and Google Cloud entered into a six-year strategic partnership on Sunday to drive the use of reliable and secure data analytics, analytics and learning tools to support the introduction of new digital products and services for Vodafone customers around the world through a platform called Core. GOOGL also recently signed a multi-year strategic partnership with Univision, a leading Hispanic content and media company, to accelerate Univision’s portfolio growth and digital transformation.
Latest financial results
In the second quarter of the fiscal year ended March 27, AAPL reported record revenues of $ 89.6 billion, up 54% from a year earlier, with international sales accounting for 67% of revenue. Net iPhone sales continued to increase sales to $ 47.94 billion, up 65.5% year-over-year. Remote workspaces continue to impact Mac and iPad sales. The segments showed sales growth of 70% and 78.7%, respectively, compared to the previous year. Its earnings per share for the quarter were $ 1.40, up $ 0.64 from a year earlier.
GOOGL’s revenue in the first quarter ended March 31, 2021 was $ 55.3 billion, up 32% from the previous year. Google’s advertising segment (including Google Search, YouTube Ads, and the Google Network) accounted for over 80% of its revenue, while its cloud segment generated $ 4.05 million in revenue during the quarter. However, only the Google services segment also generated operating income this quarter. Notably, GOOGL’s earnings per share for the quarter rose 166.4% year-over-year to $ 26.29.
Past and expected financial results
AAPL’s revenue and earnings per share have grown by an average of 9.6% and 19.8%, respectively, over the past three years. The company’s average annual free cash flow rate was 21.9%.
Analysts expect AAPL’s revenue to increase 22.1% in the current quarter (ending June 30, 2021), 29.1% this year and 4.1% next year. The company’s earnings per share are expected to grow 54.7% in the current quarter, 57.3% this year and 2.9% next year. In addition, AAPL’s earnings per share are expected to grow at a rate of 17.9% per annum over the next five years.
In comparison, GOOGL’s revenue and earnings per share have grown by an average of 18.8% and 47% over the past three years, respectively. The company’s average annual free cash flow rate was 26.9%.
Analysts expect GOOGL’s revenue to grow 46.6% in the current quarter (through June 30, 2021), 29.9% this year and 16.7% next year. The company’s earnings per share are expected to grow 91.3% in the current quarter, 50.5% this year and 7.8% next year. Its earnings per share are expected to grow 21% annually over the next five years.
AAPL’s 12-month income is 1.65 times that of GOOGL. But GOOGL is more profitable: gross margin is 54.3% compared to 39.9% for AAPL.
However, AAPL’s ROE and ROA are 103.4% and 16.9%, respectively, better than GOOGL – 23.7% and 10.3%.
In terms of the forward P / E, AAPL is currently trading at 25.66x, up from GOOGL’s 26.62x. In addition, AAPL trades in line with GOOGL in terms of a 12-month moving price / cash flow (22.21x versus 22.25x).
However, in terms of a rolling 12-month P / S, 8.07x GOOGL is 16.6% higher than 6.92x AAPL.
GOOGL has an overall rating of A, which corresponds to a strong buy in our own POWR rating system, while AAPL has an overall rating of B, which means buy. POWR ratings are calculated taking into account 118 different factors, each of which is weighted to the best degree.
Both AAPL and GOOGL are rated “A”, indicating that analysts are more confident in improving their financial performance in the coming years. Both stocks are rated B in accordance with their robust fundamentals.
In addition, both AAPL and GOOGL have a C value score corresponding to their similar pricing ratios. However, while GOOGL is ranked first out of 71 stocks in the Internet industry, AAPL is ranked 20th in the Technology – Equipment ranking of 49 stocks.
In addition to what we stated above, our POWR rating system also rated both AAPL and GOOGL for growth, dynamics and sentiment. Get all AAPL ratings here. Also, click here to view additional GOOGL POWR ratings.
FAANG stock has been one of the most profitable in the past few years and has proven unstoppable in terms of innovation. Both tech giants have built enduring brand value and achieved unprecedented scale and efficiencies in operations around the world.
However, it is also true that both AAPL and GOOGL face a number of legal and regulatory challenges in many regions. And investors must also acknowledge the fact that both companies have strong fundamentals and financial performance to tackle any potential antitrust issues. Consequently, both AAPL and GOOGL still have great growth potential. However, GOOGL appears to be a better buy based on the factors discussed here.
GOOGL is believed to be a near monopoly in Internet search and advertising. The company is considered the “gatekeeper” of the Internet because of its dominant share of the search market, bolstered by the fact that it is the default search provider for many browsers. What’s more, Google X’s varied bids, which range from Waymo (self-driving cars) to Verily and Calico (life sciences) and Deepmind (artificial intelligence systems), also provide huge opportunities for the company’s growth.
Notably, GOOGL is FAANG’s best component this year. In contrast, AAPL is the second worst FAANG stock right after NFLX. GOOGL is rapidly expanding its data centers to increase its presence in the cloud to help companies leverage edge computing and 5G. The improvement in the global economy is contributing to a sustainable recovery in the advertising business. In addition, a focus on artificial intelligence and home automation should drive further growth in the long term. Therefore, we believe that GOOGL will perform better in 2021.
Click here for our 2021 Software Industry Report.
Click here for our 2021 5G Industry Report
AAPL shares traded at $ 127.66 a share on Tuesday afternoon, down $ 4.88 (-3.68%). From the beginning of the year to date, the AAPL is down 3.65%, compared with an 11.20% rise in the benchmark S&P 500 over the same period.
About the author: Sidharatha Gupta
Sidharata’s passion for markets and his love for words led him to become a financial journalist. He began his career as a stock analyst studying stocks and writing in-depth research reports. Sidharat is currently undergoing the CFA program to deepen his knowledge of financial analysis and investment strategies. More…