1. Editorial: Alphabet vs Apple

Editorial: Alphabet vs Apple

The battle to be the world’s most valuable company

By: | Published: January 27, 2016 12:10 AM

The mantle of the world’s most valuable company by market capitalisation could change by the time Wall Street recovers from “Snowzilla” and Apple announces the results of the last quarter. A sub-par earnings from Apple or a strong one from Alphabet the week after could make Alphabet the world’s most valuable company. Apple that took over the top spot from Exxon Mobil in April 2011—but for a brief spell when Exxon roared back—has a market capitalisation of $533.9 billion, but is now less than 8% ahead of Alphabet at $493 billion. That’s not too large a gap considering Alphabet saw its market capitalisation rise $65 billion in a day in July 2015 on earnings that beat market expectations. The problem for Apple is that the global smartphone market is saturating and there are doubts over Apple’s demand from China (it is largest market after the US). Apple has reportedly cut orders to its suppliers for phone components, which seems to indicate that the Cupertino, California-based company may not come close to the 230 million handsets it sold in the year ending September 2015. Add to that the broader global slowdown and the IDC prediction that smartphone sales will fall 10% in 2016, the picture is not too rosy for Apple.

While Apple seems to be getting stuck, Alphabet’s earnings from digital advertising is expected to rise substantially. Much of the problem for Apple relates to the fact that the iPhone accounts for 66% of  its total revenues—$233 billion in year ending September 2015—as opposed to 50% of the total revenues of $182.8 billion in 2014. That has happened despite the introduction of the Apple Watch, Apple Music and a new Apple TV. The change in market capitalisation is happening despite the Apple 2015 revenues ($234 billion) and profits ($53.4 billion) being way ahead of Alphabet’s revenues of $66 billion (2014) and profits of $14.4 billion. Alphabet is expected to report $71 billion revenues for 2015. While Apple’s fortunes are tied to the smartphone, Alphabet seems to have convinced investors that it has boundless avenues for growth. Things are definitely not all that simple. Alphabet  gets close to 90% of its revenues from internet advertising, much more that what Apple depends on the iPhone. So, a change in the digital advertising map could hurt Alphabet. Also, in an interconnected world, the two giants are linked. According to a court transcript, Google paid $1 billion in 2014 to keep its search bar on the Apple device. Whether the mantle changes or not, it will still be a tech company that remains at the top.

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