Silicon Valley rivalry: Google valuation moves past Apple

Silicon Valley rivalry: Google valuation moves past Apple

Summary: The search giant is rushing to build a substantial hardware business in its pursuit of Apple. It risks alienating its shareholders.

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TOPICS: Apple, Google
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The stock market has been very good to Apple over the past decade but does its business have a solid future? The Wall Street Journal points out that Google's business is now valued higher than that of Apple.

Rolfe Winkler on the Moneybeat column reports:

Strip out Apple’s $145 billion of net cash as of March, and Google’s $45 billion. This leaves an enterprise value of $233 billion for Apple, but $241 billion for Google, reflecting the underlying value of the companies’ actual operations.

Clearly, investors are less enchanted by the future prospects for Apple's {$AAPL] hardware sales compared with the far higher profit margins on advertising that a media company like Google [$GOOG] can earn.

Apple has lots of competitors while Google dominates its markets with no challengers. Ad sales are susceptible to swings in the broad economy but so are sales of electronics.

Apple has done well to maintain high profit margins on consumer electronics  and computer hardware but this is overall a low-margin business for the rest of the industry.

It's strange to see Google trying its best to copy the Apple business model by creating a large hardware business. It paid $12.5 billion last year for Motorola Mobility, it is focusing chief executive attention, and substantial internal resources on developing a range of products from computer notebooks, to music systems, and mass consumer products such as Google Glass.

The risk for Larry Page, CEO of Google, in pursuing this Apple-like strategy is that the new business group won't be able to match the profitability of its media business. Which it clearly won't, and that means earnings per share will fall.

The more Google tries to be like Apple, the more it's investors might start to behave as those in Apple and leave. Over the past year, the iconic computer maker's share price has suffered a steep decline, from a high of $705 to $399.

Mr. Page risks alienating his shareholders. There's a big difference between the investment philosophies of  the two groups of investors. Apple shareholders prefer to invest in the future of digital hardware markets; while Google investors are betting on the future of digital media. It's a big difference. 

If Google's investors wanted to own a hardware company stock they would have bought one. The more Google becomes a hardware business, the less attractive it becomes to its shareholders. 

Topics: Apple, Google

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5 comments
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  • Maybe the new 'Motorola' plant in Fort Worth is a major hardware commitment

    Maybe Google thinks the legal confusion and baffle them with Bear Scat in court was worth $10B. Android market share went up 50% in two years, so it's just like advertising only Apple got at least -$10B bad publicity out of it. All things considered Google got Motorola for next to nothing.
    jnffarrell
  • Kudos Google

    I know this hurts the feelings of every apple fanboy on ZDNet.

    Tough.

    Speaking of hurt feelings, how is aapl doing these days?

    Ouch. Big ouch. At least you have your Tamagotchi to take care of. Run to your osx command line so your mac will sleep properly. It is never ending maintenance with all things apple.
    toddbottom3
  • Obviously Google knows more about their company then Tom does.

    "The more Google becomes a hardware business, the less attractive it becomes to its shareholders." No Tom, the more attractive it becomes! The hardware business protects the media business. Have you picked up an iPhone? At every corner Apple is trying to remove Google media on the IOS. Microsoft is trying to do the same across the Windows brand. If you have the number 1 hardware you are protecting your cash cow media brand. Even if Google makes zero in the hardware brand it is protecting its investment.
    otazman99
    • Re: The hardware business protects the media business

      You're thinking like Microsoft, where the job of each division is to reinforce the overall hegemony, without paying attention to what competitors are doing.

      Google doesn't think like Microsoft.
      ldo17
  • The Difference..

    While it is true that hardware development is a costlier risk, Google isn't betting the farm on a proprietary business model. As Apple looses its lead in the mobile market, their secondary businesses will also begin to suffer because their secondary products (music, apps, etc..) are all dependent upon Apple's hardware. Maybe Apple could actually make iOS/X available to other device manufacturers. Or how about a way to allow people to buy iTunes from their Android phones? No, like some replay from 25 years ago, Apple has chosen litigation over competition as a way to sustain their business.
    revspaminator