While the current media furor over the mismanagement of personal data by technology FAANG1 companies is unlikely to die down anytime soon… It seems as though all Silicon Valley tech companies have been crushed.
Should Apple also be suffering from the current tech meltdown?
Apple vs. Other FAANG Companies:
- Facebook: $456B (25 P/E) – No dividend
- Amazon: $680B (307 P/E) – No dividend
- Apple: $854B (16.45 P/E) – Dividend 1.5%
- Netflix: $125B (202 P/E) – No dividend
- Google/Alphabet: $700B (31.37 P/E) – No dividend
Facebook has lost around 20% of its market capitalization because it has made the most serious errors.
Not just the “Cambridge Analytica” debacle, which recently escalated to affecting over 60,000,000 people, Facebook was also involved in a secret research project to glean patient hospital medical data. Facebook also served as a platform for Russian manipulation and mayhem during recent elections.
Facebook’s media response has seemed tone deaf. Both Mark Zuckerberg and Sheryl Sandberg act more irritated than contrite.
But Facebook is not alone in its apparent unquenchable thirst for consumer data.
Google is increasingly criticized. Amazon is Trump’s whipping boy (but for the wrong reasons). Netflix is too small, by any comparison, to warrant excitement. And at a market cap of $21B, Twitter doesn’t even register (as a FAANG stock or otherwise).
This leaves Apple.
Facebook, Google and Amazon are not going to change their business models anytime soon.
They can’t simply can’t survive unless they succeed in mining personal data to provide targeted advertising opportunities for themselves and/or 3rd parties.
Facebook is 100% ad supported. In order to be free, the argument goes, it must sell ads.
But what if Facebook was not free?
Would you pay for it?
Mark Zuckerberg claims Facebook is a “utility”.
OK. But people pay for their utilities because they need them.
Do we really need Facebook? I would say no. If Facebook had a premium version that did not mine any personal data or sell to 3rd parties, what would that look like?
Let’s not hold our breaths to find out.
Google’s revenue is almost 100% ad supported with revenue comprised of three buckets:
- Advertising on Google’s own sites: 71%
- Advertising on Google’s network (AdSense and DoubleClick): 16%
- “Licensing and Other Revenues”: 13%
Licensing and other revenues has grown to 13% in 2017, but advertising still represents over 85% of the company’s revenue.2
In terms of “utilities” I would argue that Google is much more of a public service than Facebook.
By contrast, I use Amazon for shopping constantly. And am a happy Prime subscriber.
But Amazon is like the reverse of Facebook and Google in terms of how it makes money. Amazon’s revenue is increasingly moving into the personal targeting area with Alexa and advertising services… Whereas Google and Facebook could only hope to create other useful services that people would pay for.
Netflix has not been affected much by the recent uproar, but is only a fraction of the size of the other FAANG stocks.
Apple Should Be Spared The Tech Backlash
AAPL should be spared the tech backlash because the company is not peddling in selling personal data as a revenue driver.
More importantly, AAPL is, like Amazon, shifting into digital services. As we have seen from Facebook and Google, digital services are incredibly lucrative and have nearly endless potential to grow.
However, as of now, AAPL’s revenue is driven by its amazing iPhone brand, not by selling user data to advertisers.
Indeed, AAPL is the only one of the FAANG stocks that seems to place an emphasis on protecting personal data privacy, even to its own detriment, such as with Siri.
The company is a hardware company. Plain and simple.
However, the potential for improved digital services is not lost on Apple. AAPL revenue is increasingly driven by digital services which are not ad supported.
Indeed, the company’s growing services business is designed for one purpose:
To make its hardware experience better.
Unfortunately, with typical recent market stupidity, Apple has been lumped in with other tech stocks in the recent slump.
It’s stock lingering around $170 per share, as of this post, as a result.
But the company is not like Facebook, Google, Amazon or Netflix.
Apple has many risk-mitigating aspects to it that the other tech Goliaths do not have.
Apple seems to be a favorite investment of the risk averse.
And, because Apple is a hardware company, not a data company, I tend to trust Apple more than the others (with the exception of Netflix, which I am ambivalent about).
Also, from an investment perspective, I don’t see Apple being the target of antitrust regulation, or being on the receiving end of privacy complaints.
As a stock, AAPL has the lowest price/earnings ratio of the bund. It is also the only one of the FAANG stocks to offer a nice 1.5% dividend, with an incredible amount of cash coverage, and a history of steady growth, as well.
This dividend is expected to be increased significantly with the next earnings announcement. And this significantly mitigates risk for Apple as a public company.
So, the short term pain that Apple is experiencing seems unwarranted to me. And I don’t think Apple should be lumped in with other company personal data breach woes.
Footnotes
- Facebook, Amazon, Apple, Netflix and Google
- All charts by Statista.