Over the past five years, Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) have generated pretty similar returns for their shareholders with Apple stock beating out Facebook by 164 basis points — 28.6% compared to 26.99% on an annualized basis through Oct. 3.
With all the privacy breaches at Facebook in recent times, it seems like a relatively painless decision. You go with the safer option in AAPL, given both are very profitable.
InvestorPlace contributor Tom Taulli, who knows his way around growth stocks, recently recommended that investors stay away from Facebook stock because there is more potential downside in the weeks and months ahead as a result of its privacy concerns.
The Financial Cost to Facebook
“Trust is critical for a social network. Users want to make sure that their personal information is well-protected,” Taulli wrote Oct. 3. “But, unfortunately, FB has not met that standard.”
Whether we’re talking the Cambridge Analytica snafu over its handling of data or the most recent case of an estimated 50 million users’ accounts being hacked, advertisers aren’t going to remain loyal clients for too many more of these privacy breaches.
Evercore ISI Securities analyst Anthony DiClemente estimates that if five million of the 50 million users impacted by the latest breach don’t return to Facebook, it will lose $200 million in annual ad revenue.
That’s a minute piece of Facebook’s annual revenue, mind you, but if the rate of abandonment were to snowball over the next 12-24 months, that would be a more impactful hit to Facebook’s revenues.
Facebook has almost 1.5 billion daily active users. If 10% of them permanently quit the social media platform, according to DiClemente’s calculation, it could lose $60 billion in annual ad revenue.
That’s a whopping $6 billion or 2.4% off the top line. Admittedly, it’s a troubling thought if you own Facebook stock, but the likelihood of it happening is relatively low I would think.
Apple’s Capital Allocation Isn’t Great
Over at Apple, you have a company whose biggest problem seems to be whether it’s paying enough dividends.
Apple stock currently yields 1.3%.
For a company that’s growing revenues and operating profits by double digits on a quarterly basis — Q3 2018 revenues and operating profits increased by 17% — Apple’s quarterly dividend of 73 cents is plenty.
During the third quarter, Apple paid out $5 billion in dividends and made $20 billion in share repurchases. It only repaid $6.5 billion of its $97.1 billion of long-term debt.
As I’ve said in the past, Apple’s biggest weakness is that it’s beholden to dividend and buyback junkies, when it should be speeding up its debt repayment and investing in the future.
That being said, I still believe you should own AAPL stock. Here’s a big reason why.
Tim Cook is Boring
We’ve all heard the assertions that Tim Cook is boring and conservative and the anti-Jobs. That’s never going to go away.
However, he’s also the guy whose trumpeted consumer privacy, something that Facebook’s having a tough time coming to grips with.
“I see privacy as central to liberty,” Cook recently said. “I don’t want to see it slip away. Because it’s like a part of us slipping away. I mean when I say ‘us,’ I don’t mean us Apple; I mean us as Americans.”
It’s too bad that Apple didn’t come up with its own social media platform because under Cook’s leadership you could expect Apple to take privacy a little more seriously.
But Apple’s not that kind of company. It’s about products and services that are easy to use and desired by customers.
No, he’s not Steve Jobs or Elon Musk, but he is someone who’s not going to bet the farm on a hunch.
At this point, I’d take safe or risky.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
