We've come a long way since the personal computer was introduced in the 1970s. Today we can communicate face-to-face with anyone in the world in real-time with a device that we can hold in our hands. These advances in technology have been amazing for consumers and provided lucrative opportunities for investors along the way.
Apple (AAPL +1.18%), founded in 1976, has been a key player in bringing computer and mobile phone technology to billions around the world. Zoom Video Communications (ZM 3.64%), founded in 2011, is relatively new to the tech scene but has made a huge splash with its video communication platform taking off as a result of the coronavirus pandemic.
These two innovators have provided tremendous returns for shareholders, but is one a better buy today? Let's look at these two side-by-side for five different elements to make a decision: growth, addressable market, financial stability, leadership, and valuation.
Growth
Apple is a mature brand in an established but growing market. Even though the tech giant tops $267 billion in trailing 12-month revenues, it posted an impressive 9% topline growth in its most recent non-COVID affected quarter ending Dec. 28, 2019. But the coronavirus is slowing sales, and its most recent quarter's year-over-year growth was only 0.5% and analysts estimate its full-year gains to come in just above 1%.
Zoom is a small upstart that's posting huge growth. Unlike Apple, the pandemic accelerated this video platform's most recent quarter's revenues to a 169% year-over-year growth. Management increased the full-year outlook to top $1.775 billion, an amazing 185% gain over the previous year.
Winner: Zoom
Addressable market
Not surprisingly, Apple doesn't publish an addressable market number. Even though it is one of the largest tech companies on the planet, it still has plenty of room to grow. Its wearables and services segments are growing by double digits on the back of its huge install base of iPhones. It will also see a bump in demand when it releases 5G capable devices, which it's expected to do this fall.
Before the coronavirus, Zoom published that it had a $43 billion total addressable market, but that was when the company was focused on the enterprise market and wasn't counting on a huge wave of consumer customers that have flocked to its platform. It's captured less than 2% of its published addressable market, but its potential could be even bigger.
Zoom has a larger market opportunity relative to its size.
Winner: Zoom
Financial stability
Apple produced a staggering $13.3 billion in operating cash flow last quarter and has $193 billion of cash and marketable securities on the balance sheet. It currently has $110 billion in debt that it is using to finance share buybacks. With a low-interest rate environment and outstanding cash flows, the debt shouldn't be a concern for investors.
Image source: Getty Images.
Zoom is much smaller than its Cupertino counterpart, but its relative cash flow performance is astounding. Operating cash flows for the most recent quarter were $259 million, or 79% of revenue for the quarter (compared with 23% for Apple). The balance sheet is rock solid with cash and marketable securities of $1.1 billion and zero debt.
Winner: Zoom
Leadership
Tim Cook took over Apple's CEO role from founder Steve Jobs in 2011. Following a founder is a tough act, and following a legend is near impossible, but Cook has been wildly successful. Since he's been CEO, he's grown the company from $108 billion in annual revenues to $267 billion today and the stock has increased almost seven-fold. Entering his 23rd year with Apple, it's no question that Cook is committed to the company's long-term success.
Eric Yuan is Zoom's founder and CEO. He's incredibly well-liked with a CEO approval rating on Glassdoor of 98%. He's led the company through an unprecedented period of growth and the associated growing pains of customer calls being hacked and other privacy issues. He's taken ownership of these issues and delivered on his plan to make the platform stronger and safer for everyone.
Normally, I'd give the edge to the founder-led company, especially with Yaun's handling of the most recent crisis, but Cook has proven he can lead the largest tech company in the world and that's hard to beat.
Winner: Apple
Valuation
Comparing valuation metrics, it's pretty easy to call a winner here.
|
Metric |
Price-to-sales |
Trailing price-to-earnings |
Forward price-to-earnings |
|---|---|---|---|
|
Apple |
6 |
30 |
26 |
|
Zoom |
92 |
1,460 |
204 |
Data from Yahoo Finance. Table by author.
Apple has a more reasonable valuation across the board and its 30 P/E is relatively close to the S&P 500 current average of 27.7 making its superior business seem like a bargain.
Winner: Apple
Which is the better buy?
These two companies are amazing and the stocks will both be market-beating investments over the long term. Which should you choose? It really depends on your investing style and risk tolerance. If you are looking for a no brainer, low-risk stock with the bonus of dividends, Apple is your choice. If you are willing to take on more risk on a highly valued growth stock for the chance of a bigger return over time, Zoom is your pick.
For me, Zoom better matches my investing style and temperament. But I don't think you can go wrong with either of these two high-quality innovators as they will continue to delight customers and shareholders for years to come.
