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We’re Gonna Try To Make Sense Of This
At The Juice, we like to let the dust settle on things, then try to make sense of it. For example, last week’s onslaught of big tech earnings.
Like the economy, they seem to make zero sense. Until you dig deeper.
We’ll consider the economic picture, focused on consumer debt and savings, tomorrow. But, as we’ve been saying, we’re witnessing a dichotomy between two consumers:
That’s really the only answer for so much contradictory data, such as low unemployment versus two straight quarters of GDP contraction or relatively strong consumer spending versus persistently high inflation.
A Tale Of Two Types Of Tech Companies
Call Apple and Google the wealthy consumer able to afford expensive mortgages and fancy cars.
Consider Meta, Twitter, and Snap the paycheck-to-paycheck household struggling to the last days of each month to make ends meet.
But why? Scroll with us. The Juice has a theory on this.
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There are no two larger or more broad consumer conduits to information and entertainment today than Apple and Google.
Between iOS and Android – and their associated devices – and Google Search, these two tech companies have a monopoly on providing access to everything you need to function personally and professionally. At least in terms of what flows online.
Thousands, if not million of companies produce and provide content. Only a handful own and operate the delivery vehicles (iPhone, iPad), software platforms (iOS, Android) and core online services (Search) that oversee the dissemination of it.
Without Apple and Google, everybody from streamers to social media companies would find it more difficult to exist as seamlessly as they do today.
Of course, if there was no Apple or Google, others would perform the same functions.
But would they be nearly as dominant?
The Juice thinks not.
Why Has An Apple Car Been A Rumor For More Than A Decade?
Because Apple takes its time on businesses that run outside of its aforementioned core. An Apple Car would have to compete with already-established Tesla (TSLA) and other major auto companies for fickle consumers.
Same with Apple TV. It was a long time coming for similar reasons.
The content space is crowded. And, even with Apple TV online, it’s still a complement to Apple’s focus in the Services space – making money off of other companies’ content and related services. When you download the Netflix app or subscribe to Spotify (SPOT) on your iPhone, Apple still wins.
Similar situation at Google. As of its most recent quarter, advertising – via Search, YouTube, and the Google Network (e.g., Adsense) – makes up nearly 81% of Google’s total revenue. It used to comprise a much bigger piece of the pie. Well over 90%.
Google keeps its less-focused aspirations in a separate category called other bets, which accounts for less than 0.3% of revenue.
Apple and Google made choices to take on their respective roles in tech. Today, they seem like no-brainers. But this wasn’t the case when Apple was crushing BlackBerry (BB) and Google was rendering search engines from Yahoo! and Microsoft (MSFT) essentially irrelevant.
They’re Consumer Staples Companies
Struggling social media companies – particularly Meta – struggle, in part, because they’re at the mercy of the whim of the American content consumer.
Facebook went out of favor so it bought Instagram. Now, Instagram can’t seem to find its footing amid TikTok’s popularity.
We’ll write these two sentences again in five years. But probably with different names. Ultimately, they’re interchangeable.
Apple and Google are more like Coca-Cola (KO), PepsiCo (PEP), and Procter & Gamble (PG). Long haul names that’ll never go away. At least not in our lifetimes. Once they made their bold – and now seemingly obvious – decisions to go all-in iPhone, Android, and Search, they effectively became staples like Coke, Pepsi, and Crest.
While there’s some switching of brands, there’s a loyalty to Apple and Google, social media and many other tech companies simply will never enjoy.
Apple Will Be A Dividend Aristocrat
Source: Google Finance
While you probably can’t go wrong owning either stock, if history continues to work as a gauge, Apple might have the edge.
It produced $83 billion in revenue last quarter. The equivalent of winning that huge Mega Millions jackpot about 62 times. Not too shabby, but Google (yes, we have trouble calling it Alphabet!) generated a mere $69.7 billion in sales for Q2.
But the big factor – Apple’s growing dividend. The company has increased its dividend for 11 consecutive years. And it’s clearly in the financial position to continue doing so. In 14 years, it’ll join the ranks of dividend aristocrats, companies that have raised their dividend payments, every year, for at least 25 years.
The Bottom Line: If and when Apple becomes a dividend aristocrat, it’ll probably cement its status as a de facto consumer staples stock. However, if you’re a long-term investor, why wait?
It’s in times like these when we separate the stock market strong from the weak. While the dividend gives Apple a slight push past Google, both companies have proven they’re not nearly as vulnerable to the broad economic and flavor-of-the-day pressures as social media and other tech firms.
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