It seems that everyday Google Inc (NASDAQ:GOOG) is compared to Apple Inc. (NASDAQ:AAPL) and the talk is that the stock is going to crater. The euphoria over the race to $1,000 is on every Google investor’s mind, as well as every Apple investor’s mind, too. This elusive $1,000 target was once reserved for Apple, and now Google is by far the closest, trading over $870.
Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL)’s stock prices crossed paths at $580 in mid-2012, but since then Google has moved up 50% and Apple has moved down 23%.
But the real fear is that Google’s stock might mirror the free fall Apple has seen. However, the case can be made that Apple was bound to fall; Google is not Apple and Google can reach $1,000.
Bad Apple
It was a classic case of buy the rumor, sell the news. Not that the iPhone 5 was a disappointment, but that there was no new product to follow the iPhone 5. To be a truly compelling growth story, a company needs to be able to continue telling the story to Wall Street. Apple and its CEO Tim Cook failed to realize and understand this.
At this year’s All Things D tech conference, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook tried to encourage investors and Apple fans that the company has “several more game changers” ahead. If there is one encouraging fact for Apple investors, it would be Cook’s notion that for the last 15 years, the company has done the same thing, “release products when they’re ready and believe very much in the elements of surprise.”
It seems, per the rumors, Apple Inc. (NASDAQ:AAPL) has been working on an Apple TV for a number of years and Cook maintained the status quo, not giving away any specifics, saying at All Things D: “I don’t want to go any further on this. I don’t want to give anyone else the idea….there is a very grand vision.”
Google Inc (NASDAQ:GOOG), however, has still managed to do a much better job of crawling into the lives of its users. Its products are stickier and so Google was never a one-trick pony. The company’s founders Larry Page and Sergey Brin developed the company’s core profit center with its search algorithm. From there, the company has constantly branched out into other areas for revenue and profits.
Google has many different revenue streams
Google Inc (NASDAQ:GOOG) has continued to innovate and tie its products together to create revenue. Consider that:
Google’s Android operating system is the number-one smartphone operating system. Last year, 68.4% of the 700 million smartphones sold globally utilized the Android OS.
Google has its Chromebook platform.
Google’s web browser Chrome is the number-one web browser, surpassing Microsoft’s Internet Explorer.
Google Drive has eaten into Microsoft Office with its applications.
Google has been able to embed ads into Youtube.
Each day 1 billion Youtube videos are viewed on a mobile device.
Youtube mobile is now on 400 million devices.
HP’s embrace of Google’s products
One of the most interesting items from Hewlett-Packard Company (NYSE:HPQ)‘s earnings beat is HP’s embrace of Google Inc (NASDAQ:GOOG) devices. HP CEO Meg Whitman hardly mentioned Microsoft Windows during the call, but instead chose to talk about Google every chance she got. HP just launched the $339 Pavilion 14 Chromebook and the $169 Slate 7 Android tablet. Meg Whitman specifically said:
Listen, if we have the right product priced right, the channel still loves HP, and they want to sell in our
products whether it’s to small businesses, medium-sized business or the enterprise. And, frankly, having
Android products helps a lot. This $169 Slate helps covers a segment of the market we didn’t have
before.
Hewlett-Packard Company (NYSE:HPQ)’s embrace of Google Inc (NASDAQ:GOOG) devices is beneficial to both companies. HP still is beloved in Silicon Valley and the company garners a lot of respect. By HP shifting away from Microsoft and Windows, look for other companies to follow HP’s lead.
For HP, it has been dealing with a struggling PC market tied to Microsoft and Windows. Investors have noticed the change at HP with the shares hitting fresh 52-week highs and more than doubling off the lows seen last November.
At the end of the first quarter, there were a total of 47 hedge funds long HP, this includes the top hedge fund owner by market value, Relational Investors, with a $823 million position and making up 15.8% of its 13F portfolio (check out Relational’s portfolio).
Google Glass is a game-changer
As expected, Apple Inc. (NASDAQ:AAPL) CEO Cook downplayed the potential of the Google Glass product at the All Things D conference, admitting that he thinks “there’s some positive points in the product”, but sees the downside being limited due to poor “broad range appeal.” Cook believes that glasses reflect fashion and style, and for something to work in glasses, people must be convinced it is incredible. I believe Google Glass could be incredible.
The product launch is said to happen later this year before the Christmas holiday shopping season. The segment looks to be highly competitive with rumors that Microsoft, Apple, Sony Corporation (ADR) (NYSE:SNE), Research In Motion Ltd (NASDAQ:BBRY), and Samsung have been developing a glass product as well. Google Inc (NASDAQ:GOOG), though, will be able to secure first-mover advantage and that will greatly help the company.
Stacking up hedge fund interest
At the end of the first quarter, there were a total of 148 hedge funds long the stock, an 8% increase from the previous quarter. Of the hedge funds owning the stock, billionaire Stephen Mandel of Lone Pine Capital has the largest position in Google, worth close to $1.1 billion, accounting for 5.8% of its total 13F portfolio (check out Mandel’s top picks).
Going into the second quarter, Apple Inc. (NASDAQ:AAPL) had the same number of hedge funds long the stock as Google. There are a total of 148 hedge funds owning the stock and billionaire Ken Griffin of Citadel Investment Group had the most valuable position in Apple, comprising 4.2% of its total 13F portfolio (see Citadel’s big buys).
Outlook
Google Inc (NASDAQ:GOOG) seems to be on a path to $1,000. The key will be what happens afterwards. Investors need to know that there is a product in the pipeline after Google Glass is released. Even if Google Glass sales are better than expectations, investors will want to know what’s next. Markets are forward-looking. That is what happened to Apple Inc. (NASDAQ:AAPL). Investors didn’t see anything new after the iPhone 5 and sold the stock.
Google needs to be cognizant of this fact and have another big product in the pipeline if it wants to avoid the same fate as Apple. By judging from the past, I think we can expect Google to have another product ready to go once Glass is released. The company continues to invest in R&D and innovate and that’s why investors should continue to own the stock. For Google investors concerned over the short-term, shareholders should consider buying some protection with covered calls using an income-oriented strategy.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Avoid Investing in the Next Apple originally appeared on Fool.com and is written by Marshall Hargrave.
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