Episode One: Which is the Best Big Tech Stock to Invest In? Apple, Google, Microsoft, Amazon, or Facebook?
All well respected and leaders within their many domains, Apple (AAPL), Google/Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), and Facebook (FB) have long been favorite stocks to own amongst investors. These companies are known for their astronomical growth and innovation, leading investors to avidly want a piece of the pie. While all these companies are fantastic in their own right, which is fundamentally the best company to own? This is the question we will be tackling in this 4 part series where we take these behemoths head to head and evaluate their financial statements and the financial ratios over the past 5 fiscal years.
In this episode we will be comparing and analyzing the income statement and income statement derived and related ratios of the past 5 years fiscal years using our StockScraper: Financial Statement, Ratios, and Valuation Comparison Tool.
How We Will Rank These Tech Giants As We Conduct Our Analysis
As we move through some of the five years of available data provided by the StockScraper tool, we will rank each of these stocks from one to five. Coming in first place for a metric earns the stock 2 points, second earns a stock 1 point, third earns a stock no points, fourth causes a stock to lose 1 point, and coming dead last causes a stock to lose 2 points. At the end of the analysis, a tally will be counted up and one stock will be named as king...that is until future episodes where we will move on to evaluating the balance sheet and related ratios, the cash flow statement and related ratios, and valuation metrics. Keep in mind that these rankings are solely my opinions based of the data provided—you very well might look at the data for a specific metric and rank these companies differently, if so, more power to you.
What Will We Be Looking At?
We will be evaluating the progression of 11 income statement related metrics over this five year period, some of the many provided by the StockScraper tool. These include revenue, cost of goods sold, gross profit, the gross profit margin, operating expenses, operating expenses to revenue, operating income (EBIT), the operating margin, income before tax, income before extraordinary items, and the net profit margin. At the links above are definitions of each term, which are also available directly through the StockScraper tool.
Into the Income Statement: Revenue, Cost of Goods, Gross Profit, and Gross Profit Margin
We begin this journey by ranking each of these stocks’ revenue to start off. Check out the images below to view their relative performances.
- 1) AMZN: Amazon has had the most impressive run over the past 5 fiscal years with regards to revenue and revenue growth. Currently Amazon has the largest revenue of the group evaluated as of the end of the 2020 fiscal year earning a whopping $386.1 billion, and has the second highest average revenue over the past 5 fiscal years at $242.6 billion. Additionally, Amazon has continually increased its revenue over this period at an astounding 30% year over year (YOY) average increase, with the lowest YOY growth coming 2018-2019 at a still impressive 20% increase.
- 2) FB: Facebook also has had a remarkable 5 year stretch, but is a notch below Amazon in our ranking for a handful of reasons. While Facebook has had a higher average YOY revenue growth than Amazon (33.2% relative to 30% for AMZN), Facebook has a significantly smaller average revenue over the 5 year period at $56.2 billion. This is roughly 1/5th of Amazon’s 5 year average revenue and the smallest of the group by a large margin. Additionally, despite the higher growth rate on average, this growth rate has consistently slowed over the past 5 years (47% to 37% to 27% to 21%).
- 3) GOOGL: Alphabet’s (Google’s—I will use these interchangeably) revenue has landed in third place. It has had the 3rd highest 5 year average YOY growth at 19.32%, but their YOY revenue growth has trended downwards over the past 5 years. Otherwise, Google pulled in both the third highest revenue on average and third highest revenue for fiscal year 2020 out of the group, making it a clear choice for third place.
- 4) MSFT: Microsoft earned $113.4 billion in revenue on average the past 5 years and earned $143 billion in fiscal year 2020. Both of these numbers are the fourth highest overall. Additionally, Microsoft has had the average YOY revenue growth of 12% which has increased from 6% from 2016-17 to around 14% for the 2017-18, 2018-19, and 2019-20 periods.
- 5) AAPL: Apple is ranked last when it comes to revenue as it has had the lowest YOY revenue growth by a large margin—6.4% relative to the average for the other 4 companies of around 23%. This YOY growth has also been inconsistent, jumping around from 6.3% to 15.9% down to -2% and back up to 5.5%. While the growth has been the lowest on average for Apple, it is important to mention that Apple has the largest 5 year average revenue of $249.0 billion and the second largest revenue for fiscal year 2020 at $274.5 billion.
Continuing on we will look at the cost of goods sold (COGS), but will hastily proceed to evaluate the gross profit margin (GPM) and gross profit as these metrics are all heavily related and reliant on one another. While looking at COGS we will primarily compare COGS growth to revenue growth, hoping to not see revenue growth outpaced by COGS expenses.
For COGS in the image below, YOY increases/decreases are highlighted green if COGS decreased less than revenue decreased or increased more than revenue increased over that same period (denoting margin expansion). Otherwise YOY change is highlighted red, denoting margin contraction.
- 1) MSFT: Microsoft comes in first when looking at COGS as it has had a consistent margin expansion YOY over the past 5 fiscal years. COGS has increased 8.9% YOY on average, while revenue has increased 12% YOY on average. This highlights a significant 3.1 percentage point difference of revenue growth relative to COGS growth.
- 2) AMZN: Amazon is next due to its slightly lower percentage point difference of 2.2, which is second best overall. Additionally, Amazon has had YOY margin expansion for all years observed with exception of the last 2019-20 stretch.
- 3) AAPL: Apple grabs third place for COGS as COGS growth has slightly outpaced revenue growth over the past 5 years by 0.35 percentage points YOY on average. Furthermore, despite consistent margin contraction in the years observed prior to 2019, this has turned around during the 2019-20 YOY stretch. Over that period revenue growth outpaced COGS growth by 0.7 percentage points.
- 4) GOOGL: With COGS growth outpacing revenue growth by 5.4 percentage point YOY, Alphabet lands in fourth place of our listing. Additionally, Google had consistently seen margin contraction over the period observed.
- 5) FB: Facebook ranks dead last due to revenue growth being outpaced by COGS growth by 12.41 percentage points YOY on average. The 2016-17 YOY stretch was the only stretch with revenue outpacing COGS by a mere 3.15 percentage points. Every other YOY stretch saw margin contraction.
- 1) MSFT and FB (tie): Microsoft and Facebook are tied for first place when looking at their gross profit margins (GPMs) over the past 5 years. Facebook by far has the best average GPM of 82.9%, but has seen this GPM slightly decrease over the past 5 years by an average of -1.7%. On the other hand, Microsoft has the second best average GPM of 65.7%, but has also seen a consistent margin expansion over the past 5 years at a 1.4% average. While Facebook has the better margins at the moment, it’s trending in the wrong direction, but Microsoft has consistently been trending in the right direction.
- 3) GOOGL: Alphabet lands in third place behind Microsoft and Facebook. It has the third best average GPM of 56.5%, which is roughly 15 percentage points above the averages for Apple and Amazon, but also 9 percentage points below Microsoft and 26 percentage points below Facebook. Google has also seen an average of a 3.2% decline in GPM and has seen a declining margin consistently every year.
- 4) AMZN: Amazon ranks in fourth due to having the second lowest average GPM of 39.16%. It additionally has seen an average margin expansion of 3.15% YOY, which is the highest on average among the group. However this has slowed in recent years down from 5.6% expansion and 8.6% expansions in 2016-17 and 2017-18 , respectively, down to 1.8% and -3.5% in 2018-19 and 2019-20, respectively.
- 5) AAPL: Apple comes in last place with GPM as it has the lowest GPM of the group of 38.36%. It also has seen an average YOY decrease in GPM of -0.5%. On the bright side, margins have finally expanded from 2019-20 by 1.08%.
- 1) AMZN: Amazon easily lands in first place when looking at gross profit. It has risen from the second lowest gross profit in fiscal year 2016 ($47.7 billion) to the highest in fiscal year 2020 ($152.8 billion), more than tripling in the process. It also has the highest YOY gross profit growth at 34% and the second highest 5 year average gross profit of $95.0 billion. This average gross profit is only $500 million behind the leader, Apple, which had nearly double the gross profit Amazon had in fiscal year 2016.
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2) FB, MSFT, and GOOG (tie): Facebook, Google, and Microsoft all land in second place, for several different reasons.
Facebook has the lowest average gross profit and fiscal year 2020 gross profit at $46.5 billion and $69.2 billion, respectively. However, it also has the second highest YOY gross profit growth rate of 31%, not far behind Amazon's YOY growth rate and roughly double the growth rate of the third highest (GOOGL) which comes in at 15.57%.
Alphabet has the third highest YOY gross profit growth rate, the third highest gross profit on average over the 5 years of $77.1 billion, and the third highest in fiscal year 2020 of $97.8 billion. However, the gross profit growth has consistently slowed year over year, from 18.39% to 18.38% to 16.4% down to 8.7% consecutively.
Microsoft on the other hand has a slightly lower 5 year average gross profit at $74.5 billion, as well as a slightly lower gross profit in fiscal year 2020 of $96.9 billion, but has seen a consistent acceleration in gross profit growth. - 5) AAPL: Apple comes in last place once again. Despite having the largest average gross profit over the 5 years of $95.5 billion, and the second highest in fiscal year 2020 ($105.0 billion), it has only had an average YOY gross profit growth of 5.9%—far below the rest of the group.
Continuing On: Operating Expenses
Next we will look at operating expenses as well as operating expenses as a portion of total revenue in unison.
Note that in the images below, operating expenses YOY increases/decreases are highlighted green if operating expenses decreased more than gross profit decreased or increased less than gross profit increased over that same period (showing margin expansion). Otherwise YOY change is highlighted red, denoting margin contraction. Additionally, operating expenses as a portion of revenue is included below as well.
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1) AAPL and MSFT (tie): Apple and Microsoft both earned first place for operating expenses.
Despite Apple’s worsening margins (12.4% operating expense growth relative to only 5.9% gross profit growth and a 5.9% increase YOY in operating expenses to revenue), Apple has the lowest operating expenses as a portion of revenue, only 12.5% on average. This is the lowest by far with the second lowest (Microsoft) at 33%, which is a whopping 2.6x higher. Additionally, Apple spent only 32.5% of it’s gross profit on operating expenses on average, the best of the group.
Microsoft has the second lowest operating expenses as a portion of revenue, as stated above, but what makes Microsoft equal weight to Apple in this metric is the consistent margin expansion over the past 5 years. On average, gross profit growth has landed at 13.6% YOY while operating expense growth has only grown at a 7.9% YOY rate. Operating expenses to revenue has fallen by an average of -3.6% YOY, the best of the group. - 3) GOOGL: Google comes in third place due to having the third lowest operating expenses as a portion of revenue of 34.08%. This has decreased -2.7% YOY which is the second best of the group. However, Alphabet has seen its operating expenses slightly outpace it’s gross profit growth on average over the past 5 years, with gross profit growing at 15.5% and operating expenses growing at 16.3% over that period.
- 4) AMZN: Amazon has had the fourth lowest 5 year average operating expenses to revenue at 34.4%, not too far behind Alphabet and Microsoft. However, operating expenses as a portion of revenue has increased on average over the past 5 years with an average YOY growth rate of 1.4%. Additionally, Amazon spent 87.8% of its gross profit on operating expenses on average (the highest by far), but displayed some margin expansion as well (34.0% gross profit YOY growth relative to 31.6% operating expense YOY growth).
- 5) FB: Facebook ranks dead last due to having the highest operating expenses as a portion of total revenue at 42.2%, which is 12.2 percentage points more than the second highest. It also displayed the second highest average YOY increase in operating expenses as a portion of revenue at 1.7%. It spends 51% of it’s gross profit on operating expenses and this has worsened over the past 5 years as, on average, operating expenses growth has outpaced gross profit growth by 4.1 percentage points—the worst of the group.
The Wrap Up: Operating Income (EBIT), the Operating Margin, Income Before Tax, Income Before Extraordinary items, and the Net Profit Margin
We will finish up our analysis by looking at operating income (EBIT), the operating margin, income before tax, income before extraordinary items, and the net profit margin. We will evaluate EBIT then the operating margin in depth. Data for the rest of the metrics listed will be provided without a breakdown as in the case for these stocks income before tax and income before extraordinary items tell similar stories as operating income and the net profit margin tells a similar story as the operating margin.
- 1) MSFT: Microsoft is in a class of its own when it comes to operating income. It has the second largest operating income on average at $37.1 billion and 2020 fiscal year operating income of $52.8 billion. It has consistently increased its operating income with a YOY average of 19.75%, which is the 3rd best of the group, behind Amazon and Facebook. Microsoft’s operating income growth rate has been consistently accelerating YOY as well.
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2) AAPL, GOOGL, AMZN, and FB (tie): The rest of the companies are tied for second place for operating income.
Apple has the largest 5 year average and fiscal year 2020 operating income at $64.5 billion and $66.3 billion, respectively. However, it has the lowest YOY operating income growth on average by far at 2.9%. This modest growth has been highly inconsistent over the past 5 years.
Google had the third largest average operating income at $30.6 billion with a 15.0% average growth rate. Its operating income consistently increased over the past 5 years as well.
Amazon had the smallest average and fiscal year 2020 operating income ($11.6 billion and $22.9 billion respectively) despite having the largest revenue in 2020 and the second largest revenue on average over the past 5 years. This is counterbalanced by a highly impressive 68.8% growth rate over the period.
Facebook earned the second lowest operating income on average at $22.8 billion, but had the second highest average YOY operating income growth at 29.6%
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1) MSFT and FB (tie): Microsoft and Facebook have tied for the best operating margin over the past 5 years.
Microsoft had the second highest average operating margin at 32.7% and consistently has increased this margin with a YOY average increase of 6.9%. Additionally, YOY net profit margin increases have accelerated consistently.
Facebook had the highest operating margin on average over the period at 40.7%. However, it had an average change of -2.9% YOY, which is the third worst margin contration of the group. -
3) AAPL and GOOGL (tie): Apple and Alphabet have tied for third place.
Apple had a 25.9% average operating margin over the 5 years, which is the third highest, but also had a -3.4% YOY margin contraction on average. Margins have consistently trended worsened over the period.
Google had the second lowest operating margin of 22.4% and the second lowest YOY average change of -3.25%. However, over the past few years the margin contraction has reversed into margin expansion, hopefully setting a positive trend moving forward. - 5) AMZN: Last place belongs to Amazon when it comes to the operating margin. It has the lowest margin by a long shot at 4.8% on average, but on the bright side margins have expanded by an average of 29.4% YOY.
Below is the raw unhighlighted data for income before tax:
Below is the raw unhighlighted data for income before extraordinary items:
Below is the raw unhighlighted data for income to revenue or the net profit margin:
The Final Income Statement Ranking and Summary
Below we rank these big tech stocks' income statements and related ratios over the past 5 years based on our placings throughout this article. Remember these are just my rankings based on the previously described method, feel free to come up with your own!
| Ticker: | Total Points | Final Ranking |
|---|---|---|
| MSFT | +10 | 1 |
| FB | +3 | 2 |
| AMZN | +2 | 3 |
| GOOGL | +1 | 4 |
| AAPL | -3 | 5 |
In summary, Microsoft may not be growing its revenue and income at the highest rate among the group, but it’s still growing significantly despite its large size—all while expanding it’s margins at an accelerated rate.
Facebook earns the least revenue and profit, but it is growing at among the highest rate. It also has the best overall margins despite some recent margin contraction.
Amazon is growing astronomically, earns massive revenue, but unfortunately has some of the worst margins at the moment that have improved on average.
Alphabet has had remarkable growth and is relatively consistently middle of the pack for these companies.
Apple is a behemoth and earns among the highest overall, but does not have nearly the same amount of growth that the other companies have had. It has also experienced some worsening margins over the past 5 years.
In conclusion, I would like to reiterate that all these companies are fantastic companies dominating their respective domains. However, our analysis is not complete...in the next episodes we will tackle the balance sheet and its related ratios, the cash flow statement and its related ratios, and lastly the valuation metrics—all using the same StockScraper tool.
In the meantime, if you’d like to jump ahead, evaluate the multitude of income statement entries and ratios not mentioned in the article, or run a stock analysis and comparison for other companies feel free to do so using our StockScraper tool.
Published: 6/03/2021
