Will Google Follow Apple's Swan Dive?


If you have paid any attention to the stock market over the past several months, you are familiar with the saga of Apple's fall from glory. After temporarily grabbing the title as the world's biggest company by market capitalization and setting a new all-time high of $705.07 per share the day the iPhone 5 was released, the stock has plummeted 36%. With Friday's session taking the Dow above 14,000 for the first time since October 2007, Google closed the week at a record high $775.60 per share, having touched $776.70 earlier in intraday trading. Will the tech giant follow Apple's example, or can it push higher?

Google earnings
Google reported earnings on Jan. 22, providing the catalyst for the current upswing to the new high. The company surpassed the Thompson Reuters consensus estimate of $10.42 of EPS on $12.34 billion of revenue; the search king reported EPS of $10.59. Net income was up to $2.89 billion from $2.71 billion a year ago. With a year-over-year rise in revenue of 36% based on consolidated Google-Motorola results, the stock climbed 5% on the news.

Google saw a 6% fall in the average cost per click that it was able to charge customers. Offsetting this negative was the fact that total clicks jumped 24% on a year-over-year basis and 9% sequentially. Google is finding growth in advertising -- particularly in the mobile segment -- even as other critical areas continue to march ahead. Estimates place mobile search ads as accounting for roughly 35% of the company's value. Furthermore, EMarketer reports that Google commanded 41% of all digital ad revenue for 2012.

The analysts
Bloomberg reports that of the 33 analysts surveyed, three-quarters rate the stock a buy, though the average price target has only increased from $796.66 to $824.83. This is a far cry from the stratospheric price targets that were set for Apple after its stock breached the $700 level; some predicted Apple would quickly rise to $900, $1,000, or above. You should see this as good news because it suggests that these analysts are making realistic projections about where the company can go from current levels.

Apple was up roughly 34% for 2012 and looking for another banner year in 2013. When the momentum and hysteria of the masses sets in -- i.e., Apple price targets calling for the stock to breach $1,000 without taking a breather -- it is time to get worried. I do not believe that any stock can go in one direction forever, but when I suggested $700 meant it was time to sell Apple, the faithful had several not-so-choice words for me.

In the case of Google, the diversified nature of the company's business lines is a significant positive, and one of the reasons I think the company is the true king of tech. Even with that in mind, you should not be surprised to see the stock take a breather at some point. Particularly as the Dow knocks on the door of its own all-time high, a small correction in Google stock should be seen as a positive (and a potential buying opportunity).

Trying to out-Apple the crew from Cupertino
One of the most promising areas of growth for Google that is not getting much coverage is the growth in app revenue. The company was able to grow revenue from the segment more than sixfold from mobile apps in 2012. While Apple still is the market leader, despite the nearly 70% global market share enjoyed by Android, Google is gaining ground. Apple app revenue was reported at $333 million per month for the second half of 2012. App Annie projected that this is still 3.5 times the revenue that Google is receiving.

Google's global reach has seen a heightened interest from developers that are looking to reach new markets. Furthermore, App Annie's vice president of marketing, Oliver Lo, notes: "Both platforms are very healthy. More and more publishers are going cross-platform than a year ago." The shift to a cross-platform model is benefiting Microsoft as well.

Particularly as the software giant pushes to become a force in the smartphone and tablet markets, the importance of building out a full ecosystem cannot be stressed enough. Still with iOS boasting 800,000 apps and Android 700,000, Microsoft has a ways to go. I still remain of the belief that the most important core apps are generally available across platforms, but that big number still pulls headlines.

The way forward
Initial signs suggest that Google has a broad enough foundation that it need not follow Apple's fall from grace and implode from here. I remain bullish on Apple -- particularly at these depressed levels -- but prefer Google's market position. There is a solid chance that Google will need a slight correction in order to climb significantly higher, but I do not see the same double-digit slide that Apple shareholders have endured. While the immediate term is subject to some volatility, Google remains a buy for the medium and longer terms.

It's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource, and you'll receive a bonus year's worth of key updates and expert guidance as news continues to develop.

The article Will Google Follow Apple's Swan Dive? originally appeared on Fool.com.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published