Momentum and Future Prospects

29 April 2010

A lot of people were making a big deal about Apple’s market capitalization eclipsing Microsoft’s market cap last week (Important note – Apple’s market cap surpassed Microsoft on a float adjusted basis. Yahoo Finance and Google Finance still show Microsoft with the higher market cap.)

I’m not a card carrying member of the Apple tribe or Microsoft tribe, I just find the market cap comparison interesting from an investor relations perspective.

Both companies have a market cap in and around $250 billion, give or take $10 billion. Microsoft’s trailing twelve month revenue and EBITDA is approximately $58 billion and $23 billion respectively.  Apple’s trailing twelve month revenue and EBITDA is approximately $29 billion and $6 billion respectively.

$250 billion market caps.

Revenue: $58B vs $23B.

EBITDA: $29B vs $6B.

Not to mention Microsoft’s commanding lead in overall market share.

What gives?

How can the smaller Apple be valued at the same level as Microsoft (or higher)?

Enter the ever-important factor of momentum and future prospects.

Apple is on a role, has a hot new product suite, and has a cult like following.

Microsoft is a strong, steady performer that is trying to innovate and has a relatively apathetic user base.

Put simply, Apple is hot and Microsoft is….well….not cold, but more like room temperature.

The Street sees exciting things in Apple’s future and the possibility of becoming the new king of personal computing.  They have rewarded the company by valuing it at the same level as its giant peer.

Bottom line, from an IR perspective: You too can reach the valuations of your largest peers by effectively (and carefully) demonstrating momentum and future prospects. I’m exaggerating, but you get my point.

Momentum and future prospects matter.

Leave a Reply