Apple, Microsoft Fight For Financial Crown - InformationWeek

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11/17/2014
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Apple, Microsoft Fight For Financial Crown

Apple and Microsoft are the world's two most valuable companies, though neither is currently close to Microsoft's peak value from the dot-com era.

Microsoft Office Mobile: Right For You?
Microsoft Office Mobile: Right For You?
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Microsoft last week passed Exxon to become the world's second most valuable company by market capitalization. Microsoft's ascent partly reflects falling oil prices, which have caused investors to shed energy sector stocks such as Exxon. But it's also, and more prominently, another sign of Wall Street's confidence in Microsoft CEO Satya Nadella, who took over for Steve Ballmer less than a year ago but has already led the company to its highest stock prices in well over a decade.

Despite the good news, Microsoft still has a ways to go before it can challenge the world's most valuable company, Apple, which celebrated a financial milestone of its own last week. Apple's stock hit an all-time high of more than $114 per share, which pushed its market cap to almost $670 billion, also a record.

Adjusted for inflation, Apple's historic market cap is no match for Microsoft's value during the dot-com heyday, however. Microsoft's peak value in 1999 translates to more than $800 billion in today's dollars, though the company's stock fell sharply after the dot-com bubble burst. Its current market cap is just under $410 billion, around $6 billion more than third-place Exxon, and $35 billion more than fourth-place Google. As of Monday afternoon, Apple, Exxon, Microsoft, and Google were all down slightly.

[Want to learn what's behind Microsoft's success? See Microsoft's Strong Quarter: 7 Highlights.]

Microsoft's stock price has risen more than 30% since Nadella took over in February; the company’s stock has traded below $30 per share for most of the last five years, but the CEO has helped it to rally. Investors were especially hard on Microsoft following the release of Windows 8: As it became clear the OS was attractive to neither mobile nor desktop-oriented users, the company's market cap ranking slipped from third to ninth.

Initially, investors seemed to support Nadella simply because he wasn't Ballmer. In recent months, however, Nadella has begun to come into his own. Investors and analysts have praised his hybrid cloud emphasis, which pairs established products, such as Windows Server, with an emerging platform, Microsoft Azure. His cross-platform mobile strategies, such as the recent release of free Office apps for iPhones, have also won plaudits. Many have viewed even Windows 10, the follow-up to much-criticized Windows 8, with cautious optimism.

Apple's Wall Street gains are even bigger than Microsoft's; year-to-date, the iPhone-maker's stock is up over 40%. The company is riding a tidal wave of positive financial news, with record-breaking Mac sales last quarter, and record-breaking iPhone sales well underway this quarter. Slowing iPad sales might be a concern, but not enough to overshadow the company's obvious momentum. With its partnership with IBM, Apple has also pledged to increase its focus on enterprise customers, a group to which the late Apple CEO Steve Jobs rarely catered.

Apple's recent success with investors isn't all about products. The company's ongoing share repurchase efforts have also driven up stock prices, largely because Apple's purchases reduce the number of available shares, which increases demand for those that remain on the market.

Apple also recently caught the attention of activist investor Carl Icahn, whose social media theatrics have sometimes influenced the market. Best known as Dell CEO Michael Dell's nemesis, Icahn has vocally argued Apple is worth over $1 trillion. Since 2012, Apple has been the market cap leader for every quarter but one, so Icahn might be right. But his premise rests partly on tax opportunities Apple might not pursue and Apple Watch sales that might not materialize, so not all Wall Street observers are convinced.

Though Apple and Microsoft are both riding high, technology stocks continue to be prone to bursts of volatility. In September, for example, Apple lost $26 billion in market cap value in a single day. Samsung's launch of its Note 4 phablet and new virtual reality headset triggered Apple's stock losses. Apple has obviously rebounded in the subsequent weeks, while Samsung's stock, hampered by falling smartphone profits, has been up and down, at best.

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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jhonk
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jhonk,
User Rank: Apprentice
11/19/2014 | 10:12:26 AM
Re: uhhh, that is pretty bad that no one noticed the big oops in this article.
and tech company verses oil company would have been big news....  except that it happened years ago,  when Apple over took oil companies, and every other company in the world years ago....   was that something that escaped notice till now?
jhonk
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jhonk,
User Rank: Apprentice
11/19/2014 | 10:09:06 AM
Re: uhhh, that is pretty bad that no one noticed the big oops in this article.
that is sort of funny talking about "inflation",   when in 2000 "inflation" actually was a thing...   and is what caused the entire stock markets "inflated" prices back in 2000,  along with MSFT's blip up during the dot.com craze...

15 years later,  we are not in an "inflation" adjusted environment for stocks,  nor are we close...   we had the bubble burst in 2000 which caused DEFLATION of the stock market and people's entire outlook on money,  which caused DEFLATION of stock prices,  this is the time when Apple started to go up by the way.

since then we had a couple other bursts in the Market,  and on top of that a housing bubble burst,  which cause DEFLATION of all assets, and by all measures was about as bad for the stock market as the great depression....   yet this is the time when Apple stock price is soring....   

it is so none "inflation" related that one would have to be standing on the moon to get further away from what has happened here,   MsFT is not even "close" to what the Author implied as being at ANY time the richest market company,  inflation or any other measure that one wants to correct for here having to do with stocks or the market.

to give a very simple example of how far "off" this thinking is,  Apple is trading at about 3 times what it has in total assets,  which can be argued to be "inflated".... except for the fact that MSFT at the time was trading at 14 times what they had in total assets back then,  THAT is what you call inflated stock prices... or money in general.

to give another example,  I bought a $40,000 dollar Mercedes 15 years ago,   in 2008,  I could have bought that same model and brand,  with far more tech in it and 8 more years of development for less than $40,000,  today,  it is still possible to buy more car for less than the $40,000...

another example,  I bought a house 15 years ago too...  $650,000...   in 2010,  I could have bought the same house for slightly less,  and that is only because I bought in a very good area,   other people could have bought their house for 1/2 to 1/3 the price of their house 15 years ago....

Walmart has 500 and more items that are Priced LESS than 15 years ago,  and 1000 or more items that didn't exist 15 years ago at ANY price....

in reality the only "inflation" that has happened is the price of OIL,  and that actually has a depressing effect on Stock prices,  (except for Oil stocks)  yet Apple's stock price in comparison has soured past oil company stocks,  where MsFT's stock price back then did not have to deal with that particular depressing effect on stocks.

we are in a time that is "different' than most are used to... we are in a time of deflation...  where interest rates have collapsed....   the US dollar has become more valuable...  because the 'great recession'  should what was the true value of assets....   all in all,  it is shear folly to think stock prices are some how "inflatied" compared to the dot.com bubble,  which by the way was the very definition of "inflation".
TerryB
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TerryB,
User Rank: Ninja
11/18/2014 | 1:44:43 PM
Re: uhhh, that is pretty bad that no one noticed the big oops in this article.
"stock sense".  Is that like military intelligience? Where was the "stock sense" when all you people who think they know Wall Street crashed the economy and my home value in 2008?

Michael's point was very clear in this article, unlike your rambling response. Tech company over oil company is a pretty significant event, even if it is likely to be temporary condition.
Laurianne
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Laurianne,
User Rank: Author
11/18/2014 | 12:34:07 PM
Re: uhhh, that is pretty bad that no one noticed the big oops in this article.
@jhonk, thank you for your feedback. I think you have a problem with the author's methodology, not math. It's also possible you did not realize the story is talking about inflation-adjusted numbers. In either case, let's keep the conversation polite. I wrote the headline, so I will take the blame for any confusion there. 
jhonk
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jhonk,
User Rank: Apprentice
11/18/2014 | 10:19:31 AM
uhhh, that is pretty bad that no one noticed the big oops in this article.
He's got a BA in writing, but apparently didn't do very well in math?

I was scratching my head reading that headline,  knowing MSFT never achieved $700 billion...  yet there is this author telling us so?

MSFT,  when it achieved some what less than $119.93 price, but we'll use this as the measure, (considering a split afterward) in Dec 1999 had total assets of $45 Billion, (the peak dot com bubble)  Apple has had around $231 Billion  or five times as much.

MSFT's total equity then was $34.6 Billion.... Apple's is about $110 Billion or three times as much, this is after Apple buying back 1/2 billion shares.......

MSFT's Market cap never exceeded $700 Billion,  let alone $1 Trillion,  Apple has been sitting right below $700 bilion.... after buying back about 1/2 billion shares of stock....  meaning they've achieved nearly $800 billion without the share buy back.

Msft's Market cap in Dec 1999 was $620,916,955,200   or basically $621 Billion when it hit $119.93 (actually a little less than this) a share at that time they had 5.177 Billion shares outstanding, this is post split for a March 1999 2 for 1 split. They also had employee stock options in the 360 million range,  but as they liked to do,  they hid these from the earnings and balance sheet,  and eventually these cost them far more money,  (and stock holder's money) in the long run, and is what caused their eventual collapse.

this above is the Market cap that MsFT achieved during the "dot com" bubble, and their price spike,  meaning money, rather than shares was what was driving the market cap,  although stupid money,  but money none the less.  another factor was shares outstanding,  and this was also "stupid shares" outstanding too,  because MsFT was giving out stock options like they were candy back then,  and also helped boost the market cap.

how Apple has not exceed this according to the Author, when Apple is near $700 billion,  with extremely skeptical money,  rather than stupid money,  is a real head scratcher????  Although Apple has started to give shares out,  it is no where near the scale MsFT achieved in stupidity...  yet,  so I guess MsFT is still holding the crown there.....  remember Apple has 5 times the total assets of the same sort of market cap MsFT had back then...  that is what you call skeptical money driving the market cap..... and that is after Apple buying back 1/2 billion shares.... which is so far, far more than Apple is giving out in employee stock options.

by the way MSFT achieved this market cap for about a single day,  and went down hill from there,  without the unusual blip up during that christmas time, during a rumor of a settlement in the anti-trust trial which was false,  MSFT's high market cap would be even smaller....  Apple's has been bouncing around $700 Billion for quite a while now,  mainly lowering because of share buy backs,  while MsFT's was increasing because of employee stock options that were given out at insane rates....

Apple just has to cough in the right direction to gain that $1Trillion mark...  (like stop buying back shares) how this is "not close" to what MSFT achieved can only be explained by someone who was not around,  nor has the math down, nor stock sense to be writing about such things...
jbelkin
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jbelkin,
User Rank: Strategist
11/17/2014 | 10:11:20 PM
Dot Com Boom Crazy
Of course during the dot com boom, WEBVAN as worth more than United Airlines ... and KTEL (yes, that one) gained $3 BILLION in marlet cap beause they announced they were going online ... 
SteffenJobbs
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SteffenJobbs,
User Rank: Strategist
11/17/2014 | 8:32:05 PM
Apple is going to have to earn a trillion dollar market cap
Microsoft was rather fortunate to ride the crest of the dot.com era.  Investors were throwing money at every tech stock possible and yet so many companies collapsed leaving investors in ruins.  If Apple is going to take the market cap crown it will have to honestly earn it with a P/E of under 20.  Wall Street isn't simply going to throw money at Apple.  Even now, Microsoft has far more institutional investors than Apple.  It seems as though investors believe in Microsoft far more than they do Apple.  Apple has mobile profits locked down and Microsoft doesn't and supposedly mobile is the wave of the future.  However, that's not good enough for Wall Street to fully back Apple.  I really hope Apple Pay and AppleWatch are huge successes and if Apple can work with IBM and a solid sales force to push into the Enterprise, I think Apple has a very good chance of breaking Microsoft's market cap record by next year.  I'll be cheering hard while collecting my Apple dividends.
Technocrati
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Technocrati,
User Rank: Ninja
11/17/2014 | 5:37:34 PM
Re: Might Makes Right ?

@Thomas   I wonder the same things as well, it makes you wonder why they basically did nothing while watching the world move towards mobile phones  and  tablets ?  Only to buy themselves into the market at what many consider too late.

I think licensing is really where MS makes the most money - for years it was widely consider to convoluted to understand - purposely so of course.   Let say for the sake of argument that have 500 billion in liquidity - they can go for at least another half-century at least riding the coat tails of Office and Windows.   By that time they should have been able to make a smooth transition into the other potential "cash-cow" areas of the future.    

Remember it took them 19 years to find a major security bug, and that is supposed to be in their wheel house, anything outside of it  ( mobile phones and to a lesser degree the Cloud ) will probably take longer.

When all other options have been exhausted MS can and will always rely on blind allegiance of the Office and Windows faithful.  

Technocrati
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Technocrati,
User Rank: Ninja
11/17/2014 | 5:25:15 PM
The Modern Day Faux Pas

Amazing the  issue of "Women and equal pay"  has not apparently hurt Mr. Nadella nor MS. It shows how fast we move on to the next thing and how certain faux pas linger longer than others.

The only question the street is concerned with is will he bring in future revenue growth ?    And the answer seems to be affirmative.

Ok, the response by the street is to be expected, but what about the rest of us ?

Thomas Claburn
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Thomas Claburn,
User Rank: Author
11/17/2014 | 5:20:48 PM
Re: Might Makes Right ?
I wonder how long Microsoft can continue to coast on Office and Windows revenue. Is its mobile and cloud revenue growing fast enough to make a cash-cow transition possible?
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