A picture is worth a 1,000 words, and the chart tells the story. Money has been pouring out of Apple stock and into Facebook stock. Facebook has outperformed Apple by about 90% in a very short time.
Obvious are many of the similarities between Apple and Facebook.
Charismatic Leaders
Apple had Steve Jobs. Facebook has Mark Zuckerberg.
Innovation
Jobs’ had a remarkable record of innovation at Apple. At Facebook Zuckerberg is innovating as fast as Jobs did at Apple.
Culture Of Success
Jobs build a culture of success at Apple. Zuckerberg has done the same at Facebook.
Lifestyle Products/Services
Apple succeeded by producing lifestyle products that consumers use every day. Facebook has done the same with social networking.
Ability To Rapidly Scale
Apple was able to rapidly scale its sales of iPods, iPhones, and iPads across the globe.
It is well known that the biggest challenge Facebook faces is the transition to the mobile wave. After Facebook's latest quarterly earnings report, I listened to the conference call. The statistic that caught my attention was the ramp up from zero to $350 million of mobile revenues in just three quarters.
Those who have not done extensive backtesting over the recent years will contend that Facebook will never be Apple because Apple trades at a trailing P/E of about 10 and Facebook trades at a trailing P/E of about 2,800. It is worth noting that the forward P/E of Apple is about 8.7 and that of Facebook about 36. PEG Ratio of Apple is only 0.52 and Facebook is about 1.7.
The real point is that Facebook has vast untapped potential ahead of it compared to Apple. This is what starry eyed Facebook bulls see, but there are many pitfalls ahead for Facebook and there is no guarantee that Facebook will be able to capture the opportunities that are clearly ahead.
Another important consideration is that even after the fall, Apple is still overowned, whereas, Facebook is underowned. It means that there are more buyers who can run Facebook stock farther compared to the potential buyer pool for Apple stock.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here. Subscribers to The Arora Report are long Apple from $131 and have already taken partial profits on 90% of the position.
