Is Microsoft Really Growing Faster Than Apple?

Apple (NASDAQ: AAPL  ) and Microsoft (NASDAQ: MSFT  ) have been passing ships since the dot-com bubble burst 13 years ago. Apple has gone on to innovate in that time with the iPod, iPhone, and iPad to become the world's largest consumer electronics company. Microsoft has handed over the market cap crown.

Microsoft investors aren't exactly smarting lately. The shares recently hit a multi-year high of $41.66, but that still isn't an all-time high. Even after adjusting for all of the dividends that Microsoft has paid out in recent years it is still trading just shy of its peak in 1999. 

Microsoft is a bigger company these days in terms of revenue and profitability. It just had a ridiculous and ultimately unsustainable valuation at the sudsy peak of the dot-com froth. However, now that Microsoft is starting to gain momentum -- the stock has risen 17% over the past year -- it may be a good time to stack the two companies side by side. Some of the metrics may surprise you.

  • Despite activists and CEO Tim Cook prodding Apple to return more of Apple's wealth to its stakeholders, its yield of 2.1% is dwarfed by Microsoft's 2.7% payout.
  • As a result of Apple's stock soaring 44% over the past year -- a time when earnings growth on a trailing basis has declined to $37.7 billion over the past four quarters from $39.6 billion during the previous four quarters -- the iEverything's earnings multiple has expanded. Both Microsoft and Apple trade at 15 times trailing earnings. 
  • Analysts see one company growing its revenue at an 11% clip this fiscal year, and accelerating to 16% the year after that. The other company is growing slower at a projected 6% pace this year and less than 7% the following year. You may be surprised to know that it's Microsoft -- not Apple -- growing in the double digits.  

Apple fans can argue that profitability is expected to grow faster than Microsoft this year, but keep in mind that the Cupertino, California rock star is coming off depressed profitability in fiscal 2013 as net income fell to $37 billion from $41.7 billion the year before.

This doesn't necessarily mean that Microsoft is the better value. For starters, a lot of Microsoft's top-line growth is coming from low-margin hardware in the form of the Xbox One and Surface tablets. Looking out to fiscal 2015 when Apple isn't playing against the sandbagged profits of fiscal 2013, Wall Street still sees earnings growing faster than revenue. The same doesn't hold true for Microsoft. 

Apple also has the more likely chance of putting out a new product that could move the needle. It's in Apple's DNA at a time when Microsoft has had its share of hardware flops in the Zune, Kin, and the original Surface RT.

Both companies face margin-chomping challenges as well-financed competitors put out cheaper solutions to the things they do best. However, Apple and Microsoft have responded in ways that find companies growing on both ends of the income statement again.

This has never been a race, but it's true that Microsoft commands the fatter yield despite growing its revenue at a healthier pace than Apple. However, if Apple has solved the rut that saw profits and margins go the wrong way last year, it's the one better positioned to continue faster growth on the bottom line.

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