How Google Is Now Worth More Than Apple

This was inevitable. With Apple's (NASDAQ: AAPL  ) continued share weakness as Google (NASDAQ: GOOGL  ) keeps on marching higher, the search giant was bound to overtake the Mac maker in one important valuation metric: enterprise value.

Enterprise value is calculated as market capitalization plus debt minus cash. Just looking at market cap, Apple still has Google beat by a long shot with its $378 billion well ahead of Big G's $287 billion. It's factoring in the cash positions that turn the tables in favor of the search giant. The Wall Street Journal estimates Apple's enterprise value at $233.2 billion, with Google just now squeezing ahead at $240.6 billion.

Apple has historically had no debt, and initially its $17 billion bond offering had no impact on enterprise value since the company raised an equal amount of cash. However, the market value of Apple's debt has declined since then along with the broader bond market in part due to macro factors like the Fed preparing to reduce its bond purchasing. Apple's paper has declined in aggregate value by roughly $760 million since then, hurting its enterprise value.

The impact of these bond market fluctuations still pales in comparison to the daily moves in the value of Apple's equity, though. For instance, Apple shares dropped nearly $11 on Monday, translating into a market cap loss of $10.3 billion that day -- far more than the $760 million loss in bond value over the past two months.

Google's long-term debt totals just $3 billion, so bond market fluctuations aren't as meaningful to its enterprise value.

Apple's gross cash position has also grown significantly faster than Google's. Over the past year, Apple had grown its total cash from $110.2 billion to $144.7 billion by the end of March (not including the bond offering that took place after earnings). In comparison, Google's gross cash is largely unchanged, growing modestly from $49.3 billion to $50.1 billion over the same time frame.

Apple's ability to generate cash at a remarkable rate is a strength in many ways, but it doesn't help its enterprise value.

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  • Report this Comment On June 26, 2013, at 11:47 PM, JT1951 wrote:

    Market cap does not express the true value of a company..... it expresses the value of the company in manipulated markets. It is not the value based on earnings, it is the value based on guesswork by the media and analysts. Enterprise value is not worth anything either because it includes market cap as a component. P/E is a better indicator of value of a company because it is based on earnings. Add this to debt & cash on hand and you have a better idea of the true value of a company.

    Apple has a low P/E, excellent earnings, lots of cash with debt only to pay dividends to shareholders and soon to enter a new product cycle in September. Google is a great company with less cash, less debt ( but no divi ) smaller EPS.

    Apple is still a much more valuable company than Google at this point. The future is anyone's guess.

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