There is no end to conjectures and speculations over which company will be the first trillionaire stock. The coveted milestone seems to be getting closer for Apple (AAPL - Free Report) as it briefly surpassed the market cap of $925 billion (per CNBC) on Mar 12.
However, the pursuit is heating up, particularly with Amazon.com (AMZN - Free Report) trailing the iPhone maker. Search giant Alphabet (GOOGL - Free Report) and social media platform Facebook (FB - Free Report) are also in the fray.
Why Apple is Ahead?
Apple definitely has an edge in the race to become the first trillion dollar company. The stock has returned 45.4% in the past three-years, much better than 33.5% rally of the S&P 500 index.
We believe that Apple stock needs to grow at roughly 13.1% in 2018 to achieve the $1 trillion market cap (currently $884.23 billion). The company’s diversified portfolio is potent enough to achieve this growth target with relative ease. The Zacks Consensus Estimate for fiscal 2018 revenues is pegged at $260.69 billion, reflecting 13.7% year-over-year growth.
Apple is now rumored to launch three variants of iPhone in 2018. Moreover, the company’s growing dominance in the wearables market is a catalyst. Further, Apple has an innovative pipeline of products that include high-end headphones and a cheaper version of MacBook Air.
Notably, Apple Music subscriber base recently hit 38 million. The company is gearing up to become a major original content provider supported by new hiring as well as $1 billion budget.
Apple’s recent acquisition of digital newsstand Texture reflects growing focus on providing content from “trusted sources.” These initiatives will eventually drive Apple Service top-line growth in the long haul.
Amazon in Hot Pursuit
Amazon has returned a massive 328.1% in the past three years, significantly better than the 33.5% rally of the S&P 500 index.
Strong momentum in Amazon Web Services (“AWS”) and expanding Prime subscriber base (paid member growth increased in 2017) are the key catalysts for Amazon. The Zacks Consensus Estimate for 2018 revenues stands at $234.22 billion, reflecting 31.7% year-over-year growth.
AWS generates much higher margins than retail, thus positively impacting profitability. Digital assistant Alexa and the Echo devices are also expanding presence in the home automation and Internet of Things (IoT) market.
Further, the acquisition of Whole Foods has helped it to rapidly penetrate the grocery segment of the brick-and-mortar stores. Additionally, Amazon’s entrance into the lucrative healthcare and financial services market presents significant growth opportunity over the long term.
Alphabet: Innovation Holds Key
Alphabet, not Amazon, trails Apple in terms of market cap. The stock has returned an impressive 107.6% in the past three years, outperforming the S&P 500 index.
Alphabet’s focus on innovation, artificial intelligence (AI), cloud, home automation space, strategic acquisitions and Android OS should continue to drive growth. The company maintains dominant share in the search market.
Although its diversification strategy into cutting edge technology is a growth driver, these initiatives require significant investment and involve uncertain payback periods, which have hurt top-line momentum.
Moreover, the company needs to lower dependence on advertising revenues (86% of 2017 revenues).
The Zacks Consensus Estimate for 2018 revenues stands at $106.85 billion, reflecting 19.8% year-over-year growth.
Facebook Becoming Meaningful
Facebook has returned an impressive 136.7% in the past three-years, outperforming the S&P 500 index.
The company is gaining from rising mobile conversions on its platform, which is driving mobile ad growth. Increasing effectiveness of Instagram ads is also positive.
Facebook is focused on improving “conversation” and strengthen “connections” among friends. CEO Mark Zuckerberg has clearly stated that “helping people connect is more important than maximizing the time they spend on Facebook.” As a result, management expects engagement to decline in the near term.
Facebook’s video initiatives through Watch tab are commendable. The company plans to invest $1 billion in original content in 2018 and has hired executives to expand the roster of original content. The company recently signed a deal with Major League Baseball (“MLB”) to stream 25 games on Watch this season.
Not just this, prestigious awards ceremonies like The Oscars: All Access and red carpet pre-show of Golden Globes were also streamed on the platform.
Apart from video, the monetization opportunities of Messenger, WhatsApp and Oculus and a huge user base are expected to drive growth going ahead. Facebook is also dabbling in AR/VR and AI technologies, which bodes well for long term growth
These initiatives are expected to drive top-line growth. The Zacks Consensus Estimate for 2018 revenues stands at $55.41 billion, reflecting 36.3% growth over 2017.
Apple, Amazon and Alphabet carry a Zacks Rank #3 (Hold), while Facebook has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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