In a recent Motley Fool column, Chad Henage explored comparisons between Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and Microsoft Corporation (NASDAQ:MSFT). He rightfully points out that Google has a higher price to earnings ratio, and much less cash per share as a percentage of market cap, and no yield as compared with the other two tech behemoths.
There is no doubt that in a blind taste test, Google would be the first stock spit out by the investor. However, these aren't sodas. To me the question is: is Google Inc (NASDAQ:GOOG) the flavor of the month, or are there real reasons for its higher valuations?
Let's take a look, and compare these 3 stocks, not only based on valuations which Mr. Henage covered, but in terms of what the company is producing.
Mister Softy, with the exception of its gaming division, with its X Box and Kinect devices, has really produced nothing which has caught fire in years (Kinect, in all fairness, is uber-cool and novel. The technology will undoubtedly be adapted for things outside of gaming.)
Its tablet offering, Surface, has performed far below expectations which were not high to begin with. In fact, on the street, while I have seen a zillion iPads, a couple of Amazon Kindles, a few Samsung, one other Google Inc (NASDAQ:GOOG) Nexus tablets besides my own; the closest I have come to seeing a Surface tablet in existence is their commercial. Additionally, Softy’s supposed moat on operating systems is under immense pressure. I have been a Microsoft loyalist my entire computing life, but, in the last 2 years, have almost fully migrated over to Google. While a year ago I did purchase a new Windows notebook, which I very much like, I find my use and need for it decreasing as I use my Nexus tablet more and more often. The company is a lumbering giant. Bill Gates spoke of tablet computing years before Apple released the iPad, but Microsoft never created the product.
Their speech recognition software lags far behind Google Inc (NASDAQ:GOOG)'s, and with more and more use of tablets, and Google Chromebooks in direct competition with lower end laptops, the OS moat might be vaporized much more quickly than investors believe possible.
While Windows Office, Microsoft’s other big cash cow moat has some enterprise cushioning, Google Inc (NASDAQ:GOOG) docs are pushing on that door as well.
Apple stock has been decimated since the release of the iPhone 5 due to fears of increased competition and the associated margin contraction. Investors are suddenly fearful that Apple’s miraculous run of revolutionary products might have come to an end, exacerbated by the passing of Steve Jobs. While this may or not be valid, investors should bear in mind that the iPad and iPhone were three years in development each. The stock has lost over 10 percent in the last 52 weeks while they continue to pile on cash to their balance sheet. The iPad (and mini) continue to be the world's best-selling tablets (by far), and with the release of the iPhone 5, Apple has in fact gained market share in the United States. Unlike Microsoft, Apple’s cool factor is still off the chart with consumers, earned by their combination of artistry and innovation. Of course, this has attracted intense competition, (as in all good capitalistic systems,) and anticipated price pressures have sent Apple shares spiraling downwards. One thing is for certain though; Apple's brand globally remains extremely strong. While their percentage of the pie might decrease, the total pie will increase substantially. I anticipate Apple to release a lower price version of their iPhone to try to gain global market share, especially in developing countries, and get more consumers enmeshed into their ecosystem.