April 30, 2019 / 10:00 PM / 3 months ago

Breakingviews - Apple’s old age beats Google’s adolescence

The Apple logo is seen on the facade of the new Apple Store in Paris, France, January 5, 2017. REUTERS/Charles Platiau

NEW YORK (Reuters Breakingviews) - Apple has old age and experience going for it. The $965 billion firm reported on Tuesday a 5 percent decline in quarterly revenue, but it did better than analysts anticipated. Meanwhile, Alphabet shares tanked even as it posted 17 percent growth in the top line. The Silicon Valley giants are both searching for the next big thing. Lower expectations and generous handouts give Apple more cushion.

Apple’s decline was driven almost entirely by weaker iPhone sales, which fell 17 percent. More consumers are pocketing the product longer because of better computing power, a higher price tag and features that haven’t changed much. Still the company’s overall revenue of $58 billion exceeded analysts’ forecast, according to Refinitiv.

Chief Executive Tim Cook has been in charge since 2011 but he hasn’t yet managed to introduce a product as dazzling or impactful as the iPhone. What he has done is gain traction with services, which include Apple Music and money skimmed from app purchases. Those activities now account for almost 20 percent of the business.

In the meantime, the company is accelerating the return of capital to shareholders. Apple forked over more than $27 billion in buybacks and dividends in the quarter, a record payout and more than double the amount in the previous quarter. That buys a lot of patience.

Alphabet doesn’t get the same credit. The parent of Google reported on Monday that revenue growth slowed in the first quarter, and the $37 billion haul missed what analysts were expecting. Investors responded by knocking $68 billion off the company’s market value on Tuesday. By contrast, Apple’s stock jumped 5 percent after the market closed which, if it holds, would add roughly $50 billion to its valuation.

Because of Alphabet’s youth — it went public 24 years after Apple did — expectations of growth are much higher, as is the bar for meeting them. Before the latest share price movements, Alphabet was worth 27 times projected earnings in the next year while, Apple was valued at less than 17 times. The $830 billion search giant too is looking to move beyond its core competency of advertising, which accounts for 85 percent of revenue. For now, though, its adolescence is no match for Apple’s old age.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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