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Facebook vs Apple: Which is a Better Halloween Treat for You?

It seems tech bigwigs are waiting out the Halloween period to report their quarterly figures. Investors are making positions in such stocks despite persistent concerns that the tech trade has become “crowded”.

And why not? Tech has come a long way, evolving from the dot-com catastrophe to become one of the modern market’s most coveted sectors. Also, the White House’s initiative to trim tax rates is providing the much-needed windfall to such companies that have mostly hoarded money outside the United States.

America’s biggest social networking service provider, Facebook Inc. FB, is scheduled to report earnings on Nov. 1, and Apple Inc. AAPL  will release its results on Nov. 2.

Facebook is expected to score big this earnings season, courtesy of an increase in ad revenues. A Citigroup Inc C research report showed that the Internet giant will see a 47% year-over-year increase in ad revenues in the third quarter. If that happens, the company will likely be able to beat analysts’ predictions again.

Facebook’s mobile and live video efforts continue to pay off, with Instagram emerging as an important revenue stream. Apart from mobile and video, the monetization opportunities of the company’s other subsidiaries – Messenger, WhatsApp and Oculus – coupled with a huge user base are expected to drive growth. Thus, the company sports a Zacks Rank #1 (Strong Buy).

Coming to Apple, management expects growth in iPhone revenues in the fiscal fourth quarter. The world’s most valuable publicly-traded company’s enriched product portfolio, which now includes Watch 3 and 4K TV, will also help its shares gain momentum. The company’s $1-billion investment for acquiring original content and its plan to foray into the film distribution market will boost revenues further. Right now, the company has a Zacks Rank #2 (Buy) (read more: Fresh Slice of Apple This Week: Global Week Ahead).

Let us now quickly have a look at how these bellwethers are stacked against each other. You can see the complete list of today’s Zacks #1 Rank stocks here. Other major earnings releases during this period include that of Tesla Inc TSLA, formerly Tesla Motors, Inc. 

Price Performance

Facebook and Apple have been strong performers this year, handily beating the S&P 500’s gain of 15%.

However, with an increase of 56.3% year to date, Facebook has rallied past Apple’s gain of 43.9%.




Here, we are considering the stocks’ Price to Earnings Growth (PEG) ratios in order to evaluate them from a valuation perspective. This is the most appropriate ratio since it takes into account the earnings potential of the companies.

With a PEG ratio of 1.27, Apple is undervalued when compared to the S&P 500’s 1.93. However, Facebook is significantly undervalued, since its PEG is 1.11.



Gross Margin

Compared to other industries, tech companies have relatively higher gross margin levels. This is particularly true for stocks with higher brand value.

But Apple scores low in this parameter as its gross margin TTM is 38.5% compared to the S&P 500’s 48.5%. Facebook excels in profitability, with a gross margin TTM of 86.5%.



Dividend Yield

Facebook doesn’t provide a dividend, while Apple has offered a dividend yield of 1.51% over the previous one-year period.

However, this is way less than the yield provided by the broader market in the same period, which is 1.84%.



Earnings History, ESP and Estimate Revisions

Facebook and Apple have delivered positive surprises in the trailing four quarters. However, Facebook’s average beat of 11.3% steers past Apple’s level of 3.8%. 

Facebook, in the meanwhile, is projected to earn $1.30 per share on $9.88 billion in revenues, up 19.5% and 40.9% from the year-earlier level, respectively. Apple is also expected to rake in $1.86 per share on $51.17 billion, up from $1.66 on $46.56 billion in the year-earlier period (read more: All-Around Strength in Q3 Earnings Season).

When it comes to Earnings ESP, Apple is a clear winner with +1.17% against Facebook’s -3.68%.

To Conclude

The online social media company holds an edge over the iPhone maker when it comes to price performance, fundamental valuation and gross margin.

On top of this, Facebook’s year-over-year earnings per share growth is expected to surpass Apple’s in the said quarter. This is also evident from Facebook’s impressive surprise history in the last year.

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