Apple vs. Microsoft: Here’s who won – USA TODAY
Apple (AAPL)is bigger thanÂ Microsoft (MSFT). It’s more valuable, has more financial firepowerÂ andÂ hasÂ also been growingÂ faster. But Microsoft’s stock is blowing away Apple’s, Â because âÂ for investors âÂ last year is ancient history. It’s the future that matters.
It might seen strange to think of Apple asÂ the lumbering giant in a mature industry â but that’s how the stock market seems to be reading the company’s financials and more importantly estimates for the future.Â Shares of Microsoft are up 26.5% over the past twelve months – which not only beats the 5.4% decline by the Standard & Poor’s 500 during that time but makes Apple’s 18.4% decline look even more glaringly bad.
Investors might struggle to see why Apple’s stock is lagging while Microsoft is soaring after looking at the recently reported fourth quarter results.Â Apple’s profits for 2015Â reported this week were nearly five times greater than Microsoft’s. Apple’s revenue also grew 27% over the past year âÂ while Microsoft grew 1.5%.
But that’s the past. Stock prices are based in large part on what investors expect to happen in the future.Â Apple is still milking the maturing smartphone hardware industry â while Microsoft is investing in what’s seen as the next area of growth: the cloud. Microsoft’s shift to the cloud is one reason why it trades for 35 times trailing diluted earnings, while Apple trades for just 9.9 times. Cloud-based businesses are getting a higher market multiple than big hardware companies and are seen as the next evolution in the mobile revolution.
Now that both the tech giants have reported, investors get a look at the key numbers.Â The numbers are already starting toÂ tell the story in terms of:
âºÂ Past growth – Winner: Apple.Â Apple’s revenue grew 1.7% in the fourth quarter, which was muchÂ better than than 2.9% revenue decline reported by Microsoft. Apple’s adjusted profit also jumped 7.2% during the quarter – topping Microsoft’s at 1.3%. Apple has posted average revenue growth of 25.2% the past five years, says S&P Capital IQ,Â Â riding the incredible success of the smartphone market. Microsoft – reliantÂ on the mature PC market – has posted just 6.7% average annual revenue growth the past five years.
âºÂ Cash and investments: Apple. Thanks to the rich premiums charged for its products and long-growth of the smartphone market, Apple has amassed $216 billion in cash and investments. That’s almost twice the $114 billion held by Microsoft. It stands to reason since Apple’s net income over the past twelve months of $53.7 billion dwarfs that of Microsoft at $11.4 billion. But it’s also important to note AppleÂ carries more long-term debt: $53.2 billion versus Microsoft’s $40.7 billion.
âºÂ Performance to expectations – Winner: Microsoft.Â Much of the success of Microsoft’s stock is due to the fact analysts expect so little from the company. Microsoft beat quarterly revenue forecasts byÂ 1.9% and toppedÂ adjusted quarter profit targets by 9.9%. On the other hand, Apple remains a darling with investors so expectations are that much higher and tougher to beat.Â Apple did top beat quarterly earnings expectations – but by just 1.6% – and missed revenue expectations by 0.9% for the quarter.
âºÂ View of the future – Winner Microsoft. Â Analysts currently expect Microsoft to report 7.8% higher earnings and 4% higher revenue in 2016. That’s much higher than the 1.9% decline in profit and 2.2% drop in revenue in 2016 expected for Apple. Apple warned investors that iPhone shipments would fall for the first time in the first quarter.Â Apple’s most recent quarterly revenue growth of 1.7% was a fraction of its 18% growth in the past 12 months and well below is 22% growth in the third quarter, which underscores the risingÂ concern and feeling the smartphone market has peaked.
Despite all thisÂ AppleÂ still remains the favorite with analysts. Analysts think Apple will be worth $135.84 a share in 18 months, or 44% more than the Thursday closing price of $94.09. Microsoft on the other hand is expected to be worth just 10.8% more than its Thursday close of $52.06.
Technology moves fast. Just one quarter isn’t long enough to judge a winner. But theÂ comparisonsÂ are telling.
APPLE VS. MICROSOFT BY THE NUMBERS ($ millions)
Metric, Apple, Microsoft
Net income Q4 2015, $18,361, $4,998
Net income TTM, $53,731, $11,408
EPS growth Q4 2015, 7.2%, 1.3%
EPS surprise Q4 2015, 1.6%, 9.9%
EPS growth TTM, 27%, 1.5%
Revenue Q4 2015, $75,872, $25,693
Revenue TTM, $234,988, $91,262
Revenue growth Q4 2015, 1.7%, -2.9%
Revenue surprise Q4 2015, -0.9%, 1.9%
Revenue growth expected 2016, -2.15%, 4%
EPS growth expected 2016, -1.91%, 7.8%
5-year average rev. growth, 25.2%, 6.7%
Cash & investments, $216,052, $114,154
Average price target, $135.84, $57.69
Thursday’s close, $94.09, $52.06
Upside to target, 44.4%, 10.8%
L-T debt, $53,204, $40,679
P-E ratio (trailing), 9.9, 34.6
Market value, $517,966, $409,141
Stock price TTM, -18.4%, 26.5%
Sources: S&P Capital IQ, USA TODAY
Matt Krantz on Twitter: @mattkrantz.