December 11th, 2017

Apple vs. Facebook: Which FAANG Stock is a Better Buy Right Now?

FAANG stocks took a hit in the recent tech sell-off, offering lower entry points for investors. As the global economy reopens with potential coronavirus vaccines hitting the market next year, will tech giant Apple (AAPL) prove to be a better investment than social media titan Facebook (FB)? Read more to find out.

The stock market has remained highly volatile throughout this year, with multiple crashes and rallies. While March witnessed one of the biggest stock market crashes since the 2007 recession, it recovered pretty quickly. The Dow Jones Industrial Average closed over 30,000 for the first time earlier this week. The onset of the pandemic helped many tech stocks soar, while recent positive vaccine headlines have led to a decline in those very same stocks.

FAANG stocks, constituting Facebook, Inc.(FB), Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), Netflix, Inc.(NFLX) and Alphabet, Inc. (GOOGL), have also been affected by shifting investor sentiments, despite being the biggest tech companies in the world. While many people predict lower reliance on remote technology as the world gets control over the virus, with the help of the vaccines, AAPL and FB are likely to remain relevant, even when pandemic risks subside. With a large segment of the population heavily reliant on the products and services provided by these companies, obtaining their stocks on a dip can help investors generate substantial returns in the future.

Both stocks have generated significant returns over the past five years. AAPL gained 293.2% over this period, while FB returned 161.5%. In terms of year-to-date performance, AAPL is the clear winner with a 58.1% gain versus FB’s 34.3% return.

But which stock is a better buy now? Let’s find out.

Latest Developments

AAPL has been making waves in the tech world with its latest M1 chip, designed for Mac computers. Prior to this, all AAPL computers and laptops were powered by Intel (INTC) processor chips. The company ended its 15-year partnership with INTC to manufacture hardware specific M1 chips custom made to suit all Mac computers, in collaboration with Taiwanese Semiconductor Manufacturing Company Ltd. (TSM). The latest line of laptops has been delivering 3.5x faster CPU performance, and is already a hit in the market. This chip holds the card to bolster AAPL’s revenues in the upcoming months, given its industry leading performance.

AAPL launched the iPhone 12 series with 5G last month, allowing the company to be well prepared for the 5G boom. Earlier in September, AAPL announced a single low-cost subscription plan Apple One, instead of multiple plans for different Apple platforms.

FB, on other hand, is currently battling privacy lawsuits. In September, the company paid $650 million to Illinois residents as settlement against a biometric privacy breach lawsuit. FB is also required to pay a $6.06 million fine to a South Korean agency for providing personal information of users to third parties without consent.

On November 25th, France levied a digital tax on tech giants such as FB for December, amounting to 3% of the revenues generated.

Recent Financial Results

AAPL’s total sales increased slightly year-over-year to $64.70 billion in the fiscal fourth quarter that ended September 2020. This can be attributed to a 16.3% increase in revenues from the services segment. Gross margin rose 1.6% from the year-ago value to $24.69 billion.

FB’s revenue increased 22% year-over-year to $21.47 billion in the third quarter that ended September 2020, primarily due to a rise in the advertising revenues. Net income rose 29% from the year-ago value to $7.85 billion, while EPS increased 28% to $2.71.

Past and Expected Financial Performance

AAPL’s revenue and EPS increased at CAGRs of 6.2% and 12.5%, respectively, over the past three years. Comparatively, FB’s revenue and EPS rose at CAGRs of 29.4% and 19.4%, respectively, over the same period. AAPL’s net income rose at a CAGR of 5.9% over the past three years, while FB’s net income rose at a CAGR of 18.4% over the same period.

AAPL’s EPS is expected to rise 11.2% in the current quarter, 20.4% in the current year, 9.4% next year, and at a rate of 12.6% per annum over the next five years. Analysts expect the company’s revenue to rise 15.1% in the current quarter, 14.6% in the current year, and 5.2% next year.

FB’s EPS is expected to increase 23.8% in the current quarter, 45.1% in the current year, 11.7% next year, and at a rate of 16.6% per annum over the next five years. Analysts expect FB’s revenues to grow 24.6% in the current quarter, 18.7% in the current year, and 23.8% next year.

Profitability

AAPL’s trailing 12-month revenue is 3.48 times what FB generates. However, FB is more profitable with a gross margin of 81% compared to AAPL’s 38.2%.

Nevertheless, AAPL’s ROE and ROA of 73.7% and 12.5% compare favorably with FB’s 23.9% and 11%, respectively.

Valuation

In terms of trailing 12-month P/E, AAPL is currently trading at 35.11x, 10.1% more expensive than FB, which is currently trading at 31.55x. AAPL is also more expensive in terms of forward non-GAAP PEG (2.64x versus 1.53x).

However, FB’s trailing 12-month Price/Sales of 9.99x is 27.1% more expensive than AAPL’s 7.28x.

POWR Ratings

Both FB and AAPL are rated “Buy” in our proprietary POWR Ratings system. Here’s how the four components of the POWR Ratings are graded for both these stocks:

AAPL has a “B” for Trade Grade and Industry Rank, and a “C” for Buy & Hold Grade and Peer Grade. It is currently ranked #8 out of 30 stocks in the Technology – Hardware industry.

FB has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade, and a “C” for Peer Grade. It is currently ranked #15 out of 59 stocks in the Internet group.

The Winner

The sheer market size of both AAPL and FB has led to several antitrust allegations against both companies. The Free Trade Commission (FTC) plans to sue FB by the end of this month, while investigations into AAPL’s business operations are currently being conducted.

While both companies have strong financials to fight potential antitrust lawsuits, FB’s primary source of revenue from advertising is likely to decline over the next couple of months, as businesses allocate more funds to reestablish their physical market presence, as the economy reopens. AAPL, on the other hand, already has a well-established retail supply chain. Also, the company's latest technological developments have been appealing to the masses worldwide, and is thereby likely to drive its revenues in the upcoming months. So, AAPL is a better pick here.

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FB shares were trading at $278.23 per share on Friday morning, up $2.64 (+0.96%). Year-to-date, FB has gained 35.56%, versus a 14.70% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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