Research Paper: Apple, Google Analysis

Pages: 6 (2312 words)  ·  Style: APA  ·  Bibliography Sources: 1+  ·  Level: Master's  ·  Topic: Business  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] The company earned $10.7 billion last year on revenue of $50.1 billion. These figures represented increases of 10.2% and 32.3% respectively, and a net margin of 21%. As with Apple, Google is flush with cash. The company does not use long-term investments to store its cash, but instead has $48 billion in the bank. The company took out $3 billion debt it didn't need because its credit is so good it borrows at a negative real rate. With Google, the revenue and profits are both growing, the balance sheet is impeccable, and the margins are high. There are no red flags with Google's finances.

Accuracy and Reliability

For making an investment decision, past performance is only one important consideration. The data provided by the financial statements is important for understanding the past performance of these companies. For example, knowing that Google only makes money on advertising despite its numerous other high-profile services is important for an investor. Knowing the breakdown of Apple sales by product is also important. For example, Apple's past sales performance hints at the product life cycle in consumer electronics. The iPod, which has a reputation as a massive hit, has seen its sales decline for years. This is what the future holds for the iPhone and iPad products as well, eventually. Thus, this past data is valuable for making investment decisions because of the information it provides about the nature of these businesses.

However, past data for these two companies says little about the future growth prospects of either, but especially of Apple. With a short product life cycle, Apple is forced to continually launch new hit products in order to maintain sales growth momentum. In lieu of that, the company will still continue to make money, milking its cash cows, but will not be a good investment for growth and may not pay enough in dividends to offset the prediction of slow growth. Thus, the key to investing in Apple is whether one believes that a new hit is on the way, or that the company will dramatically increase its dividend payout, two things that are not in the financial statements. For Google, the financials are very reliable. The company has main business, and it is so dominant in that business that it faced an antitrust suit. Its revenues have a steady growth trajectory that does not rely on the product life cycle. Therefore, Google's financial are not only accurate, but useful to help predict future performance.

Investment Recommendation

The better investment for my client is Google. Note that the quality of the company is important, but so is the current market price. Google trades at a forward P/E of 18.23, double that of Apple. The market, therefore, already agrees that Google has better growth prospects. Both companies have excellent financials and strong underlying businesses. Apple is more cyclical in nature, but is also better-diversified. Google has a more stable business, but only has one business, and has not figured out how to make money on either Android or Chrome.

The cyclical nature of Apple's business holds that it needs a hit product to continue to grow. The market is pricing in the eventuality that Apple will not have another product in the iPad or iPhone class of hits. With a low multiple, the market is predicting little further growth for Apple. The company has cash cow products, but if it cannot innovate faster than competitors, it will struggle and eventually lose market share even further. The result is that Apple could go into decline.

Essentially, this decision is made on downside risk. While Apple could have another hit product, it might also go into a slow decline as its core products begin to age. Google, on the other hand, has a business that is clearly dominant. Buying Google stock is not a bet on the company eventually making money on Android or Chrome; it is an investment in the future cash flows from its advertising business.

On the basis of Google having the more predictable, reliable business, I assess that Google is the better investment. Apple still has downside if the company's core products become old; Google's core business has years of growth potential in front of it.

Appendix A: Apple and Google Stock Price Charts

All charts from Yahoo! Finance

Works Cited:

Gustin, S. (2013). In major victory, Google dodges federal antitrust suit with FTC deal. Time Magazine. Retrieved March 15, 2013 from http://business.time.com/2013/01/02/google-set-to-dodge-federal-antitrust-lawsuit-with-ftc-deal-report/

Alexa.com. (2013). Top sites. Alexa.com. Retrieved March 15, 2013 from http://www.alexa.com/topsites

MSN Moneycentral: Apple. (2013). Retrieved March 15, 2013 from http://investing.money.msn.com/investments/stock-price?symbol=AAPL&ocid=qbeb

MSN Moneycentral: Google. (2013). Retrieved March 15, 2013 from http://investing.money.msn.com/investments/stock-price?symbol=GOOG&ocid=qbeb

Potter, N. & James, M. (2011). Steve Jobs dies: Apple chief made early personal computer, created iPad, iPod, iPhone. ABC News. Retrieved March 15, 2013 from http://abcnews.go.com/Technology/steve-jobs-dies-apple-chief-innovated-personal-computer/story?id=14383813

Yahoo! Finance (2013). Retrieve March 17, 2013… [END OF PREVIEW]

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APA Format

Apple, Google Analysis.  (2013, March 17).  Retrieved June 19, 2019, from https://www.essaytown.com/subjects/paper/apple-google-analysis-each/5005743

MLA Format

"Apple, Google Analysis."  17 March 2013.  Web.  19 June 2019. <https://www.essaytown.com/subjects/paper/apple-google-analysis-each/5005743>.

Chicago Format

"Apple, Google Analysis."  Essaytown.com.  March 17, 2013.  Accessed June 19, 2019.
https://www.essaytown.com/subjects/paper/apple-google-analysis-each/5005743.