Alphabet Takes Top Spot From Apple In Stock Market
Alphabet has finally made the anticipated leap to become the world’s most valuable company with a market cap of $568 billion. Apple, which currently carries a stock market value of $535 billion, has held the top position since 2010 when it took what people in the industry refer to as the “technology baton” from Microsoft.
On February 1, 2016, the company that owns Google announced that its fourth quarter earnings had clocked 21.3 billion dollars, and that the value of each share had risen by $8.67, a positive deviation from the earlier projected estimates of $20.8 billion and $8.09 on revenue and shares respectively.
Before the teleconference announcement, Alphabet’s stock market value was around $565 billion; however immediately after the good news, share prices shot up by over 9 percent, closing the day at the new figures.
What high market cap means to Google
Market capitalization is calculated by multiplying the total number of shares by the value of each share. To roughly determine how many shares Alphabet has today, divide the current market cap by the value of one share. Taking February 4 as a base, each Alphabet share traded at $730 high, and therefore the sum of circulating shares from the company was around 7.7 million.
A higher market cap increases both stability and trustworthiness of a company. Shares of high value companies are less volatile and therefore more reliable for huge investments. Moreover, a company like Alphabet also offers higher dividend and therefore is more attractive.
But it is not automatic that all investors will go for a high market cap firm, given the chance. Day traders for instance neglect these places because of the low price movements.
Two volatile firms
While the prevailing trend is that, highly valued stocks show minimal spread, the trends that have been seen on Alphabet and Apple over the last few months neglect this concept. Apple share prices have been falling too fast; the beginning of the 2016 saw a sharp drop of 14 percent.
On the other hand, Alphabet has registered a rather steady rise, with daily spreads sometimes occurring in double digits. Conservative investors might have a hard time working with figures of these two; for the aggressive however, these conditions provide the best trading environment.
What might push individual buyers away from Alphabet, however, are the large stock prices. Insurance firms and hedge funds are among the majority traders of Alphabet stocks since they have enough funds to play with. On the other hand, Apple shares might be attracting more and more individual buyers due to their increasing affordability.
While its counterpart is showing exponential growth, Apple has not been performing well over the last year. Since the last day of 2015, the company’s shares have traded below $100; this is a 14% fall from its 200-day moving average of $121. At first, the sudden fall in January was attributed to the negative projections by analysts. This mainly had to do with fear over China’s pending stock market crash, but it seems there is more to it.
Some experts have taken a lighter view of the situation, suggesting that Apple is simply “consolidating” after a long period of volatility. This view is admissible because Apples’ market cap has stayed rather constant for a long period, and because of the good reports on returns during its fiscal third quarter.
However, the falling iPhone market share in China is still a cause for worry. Facebook has also delayed in creating an app for apple watch, sending further negative signals. In addition, one of Apple’s key suppliers, Semiconductor Engineering (ASE), revealed that its sales revenues did not meet the total production costs for the previous year. These and more signals, to some extent, show that things might not be right as optimists wish to believe.
In addition to its good financial news, Alphabet has announced that the number of active users on Gmail has risen to 1 billion. This is at a time when Yahoo, its one time competitor, is struggling with maintaining user numbers. Yahoo, which has around 12,500 employees, recently announced that it is cutting down on extraneous businesses to focus on its email service and search Engine.
The only other company with good news is Facebook, whose Whatsapp subscribers also clocked 1 billion during the same period.
A unique trend
Alphabet’s rise to superiority is unique for one reason: it is the first time that a software based firm has made it to this point. IBM, Microsoft, and Apple who have held this position in the previous decades are all hardware-based companies. While Alphabet has also started diversifying to the hardware industry through its startup ventures, most of its activities are still software based, with Google being in the lead.
Alphabet’s market decisions have been described by some as “too aggressive.” Over the last few years, the parent firm has not only opened new ventures but also acquired many startups.
One striking area is Google’s link building campaign, which has taken a wholly new dimension by reducing cost per click and focusing on the mobile market. The reduced charges have resulted in more advertisers opting for this option. The main reason why Google lowered its cost per click was to accommodate the rising rate of mobile phone browsing.
Generally, clicks on mobile have less value and have not been of much interest to businesses in the past. But advertisers today seem interested in wooing cell phone users; therefore, instead of Google’s income slowing down in this area, it actually rose by a whopping 31%!
Frugal with the details
Alphabet has always released its fiscal results as a whole, giving very little details about the performance of specific sectors. This time however, the public got a small clue on the differences between its mainstream engagements and “other bets”. In August 2015, the founders, Sergey Brin and Larry Page, revealed that they were turning Google into a holding for their primary income generators.
Google topped the revenue list with a net operating profit of $23.4 billion. There are a total of seven businesses under this category: the search engine, advertising, and YouTube are probably at the top of the list. Others include Chrome, Gmail, Android, and Apps.
In total, Alphabet’s other bets including its self-drive car, balloon projects, X-lab, and Calico among others accumulated operating losses of $3.6 billion, but generated revenue of $448 million. On this side, Nest, Google Fiber, and Verily generated the highest revenues. Unfortunately, expectations that the company would at least mention something about the self-drive cars project came to nothing.
On the day of the earnings call, Alphabet share prices climbed by over 9%. The next day, it soared by a further 10% and on Tuesday it was trading at highs of $780. It however fell sharply in the next two days to $730. This however was an expected rise and fall that happens after every good announcement.
Whether Alphabet will hold the high place for the next years or even months is still hard to determine. Apple has always brought surprises; and the market cap difference between the two firms is not yet wide enough. But one thing remains for sure: Google has tasted the top spot, and that in itself is something to be proud of.