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Apple: The Revenue King

Sunday - 4/21/2013, 10:40pm  ET

What is more important to a company, its number of users or its revenue? To Apple , that answer is obvious. Do they have a lot of customers? Absolutely. However, there are areas where other companies are catching up user-wise, but not necessarily revenue-wise. 

First quarter reports are showing that Android's momentum has nearly caught up to Apple's iOS App Store. Google  is no stranger to large amounts of revenue, as it generated over $50.1 billion in 2012 revenues; however, it is not in the same discussion as Apple. Apple generated over $156.5 billion, more than three times Google's revenue, in 2012. 

As for Apple apps and Android Apps, it appears that iOS users are generally more willing to pay for content than Android users. App Annie, which provides "app ranking data and high quality mobile analytics" stated: 

While the iOS App Store and Google Play both had solid gains in app downloads last quarter, Google Play had a higher percentage growth rate as well as a greater gain in absolute downloads. As of Q1 2013, Google Play’s app downloads were close to 90% of iOS App Store downloads. 

From Q4 2012 to Q1 2013, iOS App Store quarterly revenue grew by roughly one-quarter. Meanwhile, Google Play app revenue grew by roughly 90%. While Google Play had the higher growth rate, the iOS App Store gained more in absolute revenue and earned about 2.6x that of Google Play in Q1.

Despite its rising revenues, Apple's stock has plummeted in recent months. Since Oct 1, the stock is down more than 40%. Google has basically remained level, increasing just .81%. 

Let's look at revenue trends to see whether the graph above is really one of their focuses. Apple's revenues have increased an incredible 481% in the past five years, and more than 5% in the first quarter of 2012. Its revenues have increased annually for more than ten years, and they have grown over 2,521% since 2003. 

Google's revenues, like Apple's, have risen annually since 2003. However, in the past five years, they are up only 230.2%. Interestingly, their ten year growth of 3,422% has increased more than Apple's! 

I think one of the most telling figures we can look at is Apple's gross margin. In 2012, 53% of Apple's revenues were derived from the iPhone. This is a device that requires parts, technology, and labor to produce, and yet their 2012 gross margins were 43.9%. Google is a company that acquires 79.2% of its revenues from ads, and its 2012 gross margins were 58.9%.  

Google only generated $296 million through apps in 2012. Apple generated nearly $8.1 billion through iTunes and iOS Apps. While these figures are combined, let's break it down for perspective. $296 million is only 3.65% of Apple's $8.1 billion. Surely iTunes didn't account for 96.5% of those revenues. After all, there were nearly 20 billion iOS downloads in 2012 alone.  

Are revenues really important? For a company, absolutely. However, if we look at it from an investor's view, which company provides the most bang for you buck? Both companies have seen annual increases for over a decade in earnings per share, revenues, and net income. Apple does offer a 2% dividend yield -- Google doesn't offer dividends. Google offers a 5.3% FCF yield while Apple's is 12.45%. Obviously, Apple is the cheaper of the two companies, but in recent months its performance has obviously been worse. So, Apple may offer more bang for your buck, but no one knows how low the stock will fall.

The Foolish Bottom Line...

Apple and Google are both great companies. They have both changed the way we view certain things, whether it be smartphones or how we 'surf the web.' Value investors should be ecstatic at how cheap the company has become with its recent fall, but they shouldn't overlook Google, which is fairly priced. The one thing we do know: Apple will find ways to generate revenue one way or another.

This article was originally published as Apple: The Revenue Kingon

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