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Apple or Google?

This article is more than 10 years old.

Markets where Google and Apple overlap... (Photo credit: The Next Web)

Helped by an overall positive market sentiment and new products introduced in the last quarter, the stocks of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) raced towards new highs gaining 16 and 32 percent respectively.

What’s next? Which stock is expected to do better for the quarter? The future continues to be bright for both companies.

First, they are the world’s leading innovative companies that continue to churn out new products and services, creating new markets. Google introduced its own smartphones last quarter, Motorola’s Droid Razr HD and Razr M., and Apple unveiled iPhone 5.

Second, they have been managing to monetize innovation, boosting their top and bottom line; and are still trading at a reasonable PE; Apple is trading at a forward (Sept 2013) PE of 12.52, while Google is trading at a forward PE of 15.30  (Dec 31, 2013).

Company Apple Google
Forward PE 12.52* 15.30
Operating Margin 35.62 % 30.76%
Qtrly Revenue Growth (yoy) 22.60% 35.30%
Qtrly Earnings Growth (yoy) 20.70% 11.20%

*Fye Sep  24, 2013

+Fye Dec 31, 2013

Source: Yahoo.Finance.com

Yet if I had to choose between the two, I would bet on Google -- for four reasons.

First, Google has transformed itself from an Internet start-up to an all-purpose conglomerate. “Google isn’t just an Internet search engine, even if online ads still drive the bulk of its revenue. These days, it’s all-purpose conglomerate controlling the busy intersection of technology and information, with a hand in mobile communications, hardware, software, cloud computing, and social networking.” By contrast, Apple remains confined to smartphones and tablets, a market that’s beginning to get crowded.

Second, Apple is spending too much time fighting legal battles instead of market battles. For almost a decade the company competed the old free enterprise way: churning out products that changed consumers lives, like MacBook, the IPod, the IPhone and the iPad.

Recently, however, Apple seems to have begun moving away from this business model. I’m talking about the prolonged litigation with Samsung, which in the end may hurt smartphone customers, as well as the company’s decision to drop Google maps.

Legal battles divert leadership from looking after the basic corporate functions -- most notably, the discovery and exploitation of new business opportunities. Microsoft’s (NASDAQ:MSFT) leadership, for instance, spent a great deal of time battling the US and European governments in a period when Apple defined the market for mobile devices.

Third, Apple’s $1 billion legal victory against Samsung Electronics eliminates a major threat the company faces in the smartphone market -- competition from similar products from Asian manufacturers. But it doesn’t eliminate the ultimate threat every product faces: market saturation. Once consumers get enough smartphones, demand will taper off, as was the case with Sony’s (NYSE:SNE) video players and cameras, Corning’s (NYSE:GLW) fiber optic cable, and Cisco’s (NASDAQ:CSCO) Internet gear.

Fourth, Google is still managed by company Co-Founder Larry Page, while Apple is run by a successor to Steve Jobs, Tim Cook. And some observers here at Forbes have raised questions as to whether Cook can manage the company effectively.

Also read:

Why Google's Nexus 7 And Microsoft's Surface Tablets Will Beat The iPad

Apple’s $10 Billion Apology 

After $30 Billion Mistake, Can Tim Cook Manage Apple?