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Apple Inc. (AAPL), Google Inc (GOOG): Dude, Where’s My Market?

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Google Inc

Editor’s note: Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), related tickers

“The future of tablet computer isn’t e-readers.” Huh. Nice to know…I guess.

That’s the statement by Barnes & Noble, Inc. (NYSE:BKS) CEO William Lynch in a recent interview. Lynch was discussing the move by the bookstore – and tablet – company to add a new feature to its Nook tablets. That feature? Google Inc (NASDAQ:GOOG) Play.

By adding Google’s app store to the Nook, Barnes & Noble, Inc. (NYSE:BKS) is accomplishing two things. First, it’s expanding the number of apps available to Nook owners from 10,000 to more than 700,000, thereby better competing with the Kindle Fire and other tablets. Second, it’s surrendering to a market that demands more and has put the Nook’s parent company under existential pressure.

Dude, where’s my market?

It shouldn’t be – I hope it’s not – a secret to any reasonably intelligent investor that bookstores are in real trouble in this technological age. Hard-copy books and magazines are threatened by both the death of advertising and the growth of digital editions. The spread of smartphones and tablets is punching the need for brick-and-mortar bookstores in the neck and recovery doesn’t seem on the horizon.

Barnes & Noble

12-month Growth P/E EPS Dividend Yield Net Margin
33.7 n/a -2.12 n/a -0.9%

For Barnes & Noble, Inc. (NYSE:BKS) to continue to exist, it needs the Nook to do well. The problem is, it isn’t. In a crowded tablet market, the Nook has been steadily dropping in market share. In the most recent quarter it got passed by that upstart Surface Tablet and dropped out of the top five. Not a good sign.

I’ll be honest, even with Google Inc (NASDAQ:GOOG) getting involved with the Nook, I couldn’t advise you to invest in Barnes & Noble. The combination of a declining market share, negative earnings, no profit and an ever-more-crowded tablet market says to me that Barnes & Noble, Inc. (NYSE:BKS) is likely to be one of the companies forced out of the market. Yes, a white knight could come along and rescue it, but why would one do so? There’s no good answer to that question.

Ah, here’s the market!

Google

12-month Growth P/E EPS Dividend Yield Net Margin
34.9% 24.7 33.59 n/a 21.5%

What we see here in the move of the Nook to work with Google Inc (NASDAQ:GOOG) is a competing philosophy. Google has approached the tablet market very inclusively. By providing the Android operating system and the Google Play app store, the company is showing off how to make a profit without having to manufacture your own tablet and not treating competing firms as enemies. By promoting cooperation and inclusion, Google Inc (NASDAQ:GOOG) gets pieces of a lot of different pies without taking a lot of risk for itself. Yay!

It has shown success for the company’s investors. While it’s not impossible for Google to be knocked off its perch as the best tech company in America, right now that’s where it is. Solid share growth without a crazy P/E also tells me it’s not being overvalued. It’s going to hit $1,000 per share sometime soon and it still won’t be overvalued. Only the lack of a dividend indicates that Google Inc (NASDAQ:GOOG) is still committed to growth and not yet a fully mature company. Still, there are worse problems for an investor to have.

Apple Inc. (NASDAQ:AAPL)

12-month Growth P/E EPS Dividend Yield Net Margin
-26.1 10.6 41.89 2.7% 26.7%

In the corner directly opposite from Google’s inclusive approach, we have Apple Inc. (NASDAQ:AAPL) . Apple is very much the king of secrecy and exclusion. While that approach has made the firm very successful – current share-price issues notwithstanding – it paints the company with a less friendly face than Google Inc (NASDAQ:GOOG). By working hard to be the one and only cool place to be, and requiring a high price to enter, Apple Inc. (NASDAQ:AAPL) has built itself a large loyal base of customers, but it also means that things like getting other tablets to sell through the App store are never going to happen.

With nearly a 40% market share in a segment – tablets – that grew 142% year-over-year, it’s not like Apple is going to feel any need to share the love. But that may be a short-term strategy that doesn’t pay off in the long term. As the market gets more crowded – and it will – there will be a greater pressure to work and partner with others to maintain market share. Counting on Apple Inc. (NASDAQ:AAPL) to maintain 40% of the market is unreasonable.

Still, I believe that investing in Apple is something a smart investor should do. The recent decline in share value is – in my opinion – largely media driven. If another firm, one with a friendlier reputation, turned in an EPS of 41.89, a net of 26.67% and a dividend yield of 2.7% it would be going gangbusters. If Google had those numbers – and it doesn’t – it would already be past $1,000 per share. Watch for an Apple Inc. (NASDAQ:AAPL) rebound, and soon.

Can B&N be saved?

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