Alphabet and Meta are two of the biggest dogs in the mega-cap space…
Interestingly enough, they also happen to have lots of similarities as far as business model is concerned!
Both companies make most of their revenue from third-party advertising.
The key difference is the purpose behind their respective platforms…
Where Meta primarily runs social media brands (think Facebook and Instagram), Alphabet runs search-based ones (Google and Youtube).
With this in mind, let’s compare these two giants and see which one reigns supreme!
1.) P/E ratio
While there is certainly a strong growth story left in Meta and Alphabet, both companies have been profitable for a long time now…
This means that a P/E comparison makes more sense than P/S in our eyes.
According to YCharts, Alphabet has a slightly lower P/E than Meta.
Remember that the lower the number, the more bang for your buck you’re getting from an earnings perspective!
Alphabet definitely gets the edge here…
2.) Assets vs. Liabilities
This is one of the industry standards for determining the overall health of a company.
With interest rates now expected to stay high for longer, this becomes an even more important metric…
Why?
Because it makes it more likely that we will hit a very rough economic patch, potentially causing even behemoths like Alphabet and Meta to struggle.
With this in mind, let’s compare the two companies…
With Meta, we have $206.68 billion in total assets compared to $72.65 billion in liabilities as of their latest quarterly filing in June.
We then subtract the liabilities from the assets to get the net difference between the two…
We get a net positive of $134.03 billion for Meta.
When we do the same thing for Alphabet, we get a net positive of $267.14 billion…
That’s almost double what Meta has, so Alphabet is the clear winner here!
3.) Growth Potential
So far we’ve only addressed the present value of these companies.
The reality is that they likely have plenty of growth ahead of them!
Here are a few key metrics to consider (from SimplyWallSt)…
If we compare most major growth metrics, it seems clear that Meta has a lead here…
The earnings growth rate is projected to be almost 6% higher per year, with around 5% higher earnings per share growth compared to Alphabet.
While this may not sound like a big difference if you extrapolate that over 5-10 years it becomes pretty substantial!
Projected revenue growth is very close though, with Meta still getting a slight edge.
It’s important to keep in mind that these numbers are based on analyst projections…
In other words, the actual growth may end up being completely different than what the average expectation is from Wall Street!
This is why it’s important to also look at growth from a fundamental lens…
Given how dominant both companies are in their respective niches, they will most likely need to grow elsewhere in order to really see revenue and earnings skyrocket!
For Meta, it’s pretty clear that VR and the MetaVerse will be that niche.
For Alphabet, it will probably be developments in AI…
That’s not to say that Meta can’t benefit from that sector as well, but Alphabet seems to be in a better position to dominate the space.
Given how many uncertainties there are though, here are two useful questions to ask yourself:
- How big is each respective industry likely to be?
- How likely is each respective company to dominate it?
None of us hold crystal balls, but we can do our best to form an opinion based on the limited information that we have.
I think Meta is more likely to dominate the Metaverse given that its only major competitor will likely be Apple, however…
I don’t have nearly as much faith in that industry as a revenue generator as I do with AI!
With this in mind, I give Alphabet the slight edge here…
Have a great weekend folks!
Until Next Time,
-Damian