Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) are two large cap growth stocks, or are they? Can Google Inc (NASDAQ:GOOG) continue growing its search business without attracting the attention of governments looking at it from an antitrust angle? Apple Inc. (NASDAQ:AAPL) has seen massive growth on the back of all things “i” but now that its competitors are catching up, where can it go from here.
Bigger doesn’t mean better
Microsoft Corporation (NASDAQ:MSFT) has been on top of the software game for over two decades, but that has not done much for investors over those same ten years. Microsoft Corporation (NASDAQ:MSFT) has only returned 17% capital gains to investors (not counting dividends) over the past ten years, which is hardly a return to write home about. As Microsoft Corporation (NASDAQ:MSFT) grew, it amassed large amounts of cash, and ran into trouble with the U.S. government by looking anti-competitive.
Google Inc (NASDAQ:GOOG)’s recent spat with the EU is looking very similar to what Microsoft Corporation (NASDAQ:MSFT) saw in the 90’s. This large company continues to grow bottom line and add to its cash hoard, which currently stands at $54 billion, and is climbing at a rate of $3 billion – $4 billion per quarter. Microsoft Corporation (NASDAQ:MSFT) has had its cash cows Windows and Office, but started to waste billions when the company made acquisitions. With the amount of money Google Inc (NASDAQ:GOOG) has on its balance sheet, instituting a dividend may be the best option.
Google Inc (NASDAQ:GOOG) grew consolidated revenue by 19% year over year to $14.1 billion in 2Q, with Google advertising at $13.1 billion and Motorola Mobility coming in at $998 million. The Motorola division was up over $150 million year over year, compared to when the company was teetering as an independent manufacturer. Google Inc (NASDAQ:GOOG) noted that infrastructure continues to be a key strategic area of investment, this could mean that we are going to see Google spending even more money rolling out Google Fiber.
Google brought in 55% of revenue from overseas, with the cost of revenue sneaking up to 43% from 40% last year. Google is now moving into the less profitable mobile space aggressively, and as such, we should have expected to see higher expenses as a portion of revenue. These higher expenses are also weighing in on operating margins, which went from 33% to 28% year over year, and need to be watched closely.
Spinning your wheels
Microsoft Corporation (NASDAQ:MSFT) has been getting hammered as its Operating Systems and Office divisions seem to be anchored to PC sales that have been declining over the past few years. Microsoft is expecting both of these divisions to be a drag on revenue, slightly offset by enterprise and cloud offerings. Next year, Microsoft is expecting revenue performance to be flat or grow in low single digits. The company has been trying to rapidly expand into the tablet market, but is having a hard time with the constant Android entrants at the low end competing on price. These devices also have the benefit of not having to purchase a Windows license.
Dude, you’re getting a Dell
Dell Inc. (NASDAQ:DELL) has been ‘off and on’ when it comes to selling out to its founder Michael Dell and a consortium of investors. Dell has a net profit margin of 3.3% and continues to be hammered by the global slowdown in PC sales, as consumers and businesses keep their old laptops longer without upgrading. Dell Inc. (NASDAQ:DELL) manages to pay out 22.5% of last year’s earnings to support a 2.5% dividend. However, that dividend yield doesn’t nearly make up for the 43% drop in Dell’s stock price over the past five years.