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Photo: Rick Friedman/Corbis via Getty Images

Last week, I mentioned somewhat offhandedly that Microsoft had a larger market capitalization than Apple. I received a lot of responses to that item, mostly asking me to explain why, exactly, the difference in market cap doesn't matter.

At $804 billion, Microsoft's market cap is still marginally higher than Apple's $800 billion. That doesn't mean Microsoft is bigger than Apple.

Just in terms of market value, the most comprehensive measure is not market capitalization but rather enterprise value. That's how much you'd need to pay if you acquired the entire company, including debt, at its current market price. Microsoft's enterprise value is $760 billion; Apple's is $863 billion.

More importantly, companies are not stocks, and stocks are not companies. Compare the actual size of the two companies, and it's not even close. In the most recent fiscal year:

  • Microsoft had $110 billion in sales, while Apple had $266 billion.
  • Microsoft had $71 billion in gross income, while Apple had $102 billion.
  • Microsoft had $17 billion in net income, while Apple had $60 billion.
  • Both companies have roughly the same number of employees: 131,000 at Microsoft, 132,000 at Apple.

By the numbers: The market values each dollar of expected Microsoft 2019 earnings at $22.30, compared to just $12.40 for Apple. That explains why the two are neck and neck in terms of market capitalization.

  • Microsoft gets most of its business in the form of recurring revenue: If a company bought an Office 365 license last year, it will probably buy one next year, too. With Apple products, it's the other way around. If you just bought a new iPhone, you probably won't want another one next year. It makes sense that recurring revenue is valued more highly than sales of physical products.
  • Microsoft is also expected to grow faster than Apple over the next few years. There's nothing wrong with being a hugely admired tech-hardware company earning tens of billions of dollars every year, but the stock market always loves to see growth.
  • Microsoft's market cap has been bolstered by a series of major acquisitions, including LinkedIn ($24.5 billion), Skype ($9 billion), GitHub ($7.5 billion), and Nokia ($7.2 billion). Apple has been much less acquisitive: Its only major recent acquisition was Beats, for $3 billion. (Apple's most important acquisition, by far, was when it bought NeXt for a relatively paltry $400 million in 1996, thereby acqui-hiring Steve Jobs.)

The bottom line: Apple is not any smaller today than it was two months ago, when its market cap was $300 billion bigger than it is now. Stocks are volatile, and market cap doesn't even tell you how well the shares have performed. Treat it with extreme caution.

Go deeper: Why Apple's $1 trillion milestone matters

Go deeper

Updated 6 hours ago - World

Over 3,000 detained in protests across Russia demanding Navalny's release

Russian police officers beat protestesters at a rally against of jailing of oppositon leader Alexei Navalny in Moscow on Saturday. Photo: Mikhail Svetlov/Getty Images

Police in Russia on Saturday arrested more than 3,300 people as protesters nationwide demanded that opposition leader Alexey Navalny be released from jail.

Details: Demonstrations began in the eastern regions of Russia and spread west to more than 60 cities.

Updated 8 hours ago - Politics & Policy

Arizona Republicans censure Cindy McCain and GOP governor

Combination images of Cindy McCain and Gov. Doug Ducey. Photo: FilmMagic/FilmMagic for U.S.VETS/Michael Brochstein/SOPA Images/LightRocket via Getty Images

Arizona Republican Party members voted on Saturday to censure prominent GOP figures Cindy McCain, Gov. Doug Ducey and former Sen. Jeff Flake (R-Ariz.), who've all faced clashes with former President Trump.

Why it matters: Although the resolution is symbolic, this move plus the re-election of the Trump-endorsed Kelli Ward as state GOP chair shows the strong hold the former president has on the party in Arizona, despite President Biden winning the state in the 2020 election.

Updated 11 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Health: Most vulnerable Americans aren't getting enough vaccine information — Fauci says Trump administration's lack of facts on COVID "very likely" cost lives.
  2. Education: Schools face an uphill battle to reopen during the pandemic.
  3. Vaccine: Florida requiring proof of residency to get vaccine — CDC extends interval between vaccine doses for exceptional cases.
  4. World: Hong Kong puts tens of thousands on lockdown as cases surge — Pfizer to supply 40 million vaccine doses to lower-income countries — Brazil begins distributing AstraZeneca vaccine.
  5. Sports: 2021 Tokyo Olympics hang in the balance.
  6. 🎧 Podcast: Carbon Health's CEO on unsticking the vaccine bottleneck.