How Google (GOOG) Beat Apple (AAPL) to $1,000

Michael Teague  |

Seven days ago, Wall Street returned from the weekend to continued political deadlock in Washington, D.C. that had already closed or curtailed swathes of the federal government, and that was threatening further calamity with a fast approaching debt-ceiling deadline.

Despite some two weeks of intractable and increasingly bitter confrontation, however, a last-minute deal to immediately reopen the government and put off decisions over the nation’s borrowing limit until the New Year quickly subdued the political upheaval. In the wake of all the uncertainty, markets were especially susceptible to a catalyst. And as it turns out, one was not long in coming, by way of a third-quarter earnings season whose opening weeks had been relatively overshadowed by events on Capitol Hill.

By Thursday’s afterhours session, tech megalith Google (GOOG) brought the focus back to fundamentals by unleashing an unexpectedly robust third-quarter earnings report that surpassed Street expectations,  vaulting the company’s shares over the $1,000 mark, making it one of only a very small number to achieve this feat. Indeed, when the dust settled on Friday, Google strolled into the weekend on an advance of nearly 14 percent, closing at $1,011.41 and leaving no front-page headline untouched in its wake.

With Friday’s result, Google spurred the S&P 500 to yet another all-time record close, and was the most visible component of a broader rally that was particularly generous to companies operating in that ever-expanding region of the tech sector in which advertising dollars constitute the main source of revenue.

Just over a year ago, however, the picture was much different. It was only April 2 of 2012 that Brian White of Topeka Capital Markets became the first Wall Street analyst to give Apple’s (AAPL) stock a price target in excess of $1,000. White’s bullishness on Apple was predicated on the metaphysically-tinged claim that the tech leader was being “Driven by an ever expanding portfolio of innovative products, a growing integrated digital grid, unmatched aesthetics and a brand that is able to touch the soul of consumers of all backgrounds, Apple fever is spreading like a wildfire around the world and we see no end in sight to this trend,” optimistic about the company’s growth prospects in China, as well as the move to superior quality 4G LTE networks, as well as the anticipated release of flat-screen iTV product to appear within the year. Shares closed that session at $618.60, but had already been on a sharp ascent since breaking $400 at the end of 2011.

The wildly successful release of the iPhone 4 in mid-2010, and its thickly-anticipated follow-up model 4S in October 2011 had consolidated Apple’s dominance of the smartphone market. Meanwhile, the company was comfortably the leader in tablets with the March 2011 release of the substantially upgraded iPad 2, a product whose predecessor had already sold over 15 million units during the course of the previous year.

Topeka’s coverage of the stock would soon be replicated by other investment firms, with each target more optimistic than the one before, and the possibility of Apple’s attaining $1,000 became a central preoccupation of financial media. In the six months that followed, shares would rise to a Sept 21 intraday high of $705.07, before closing just a nudge above the $700 mark.

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Apple rival Google had closed April 2 at $734 in the midst of its own uptrend dating back to the previous June, that would see shares adding some $200 through the beginning of October before cooling off. From that point on, the companies embarked on diverging paths; Google was just catching its breath in preparation for a 43 percent advance in 2013, while Apple’s decline was more sudden and more persistent. By mid-April of 2013, shares for Apple had retracted to under $400, though there have since been some modest recuperations.

The differing outcomes that have been experienced by the two competitors can be described from a variety of angles, but the problems for Apple that began late in 2012 have resulted in large part from the products that have been released under the brand since then, to say nothing of the alleged products that have yet to see release. Ever since the success of the iPhone 4 models, there has been increasing pressure on the company to come up with another "game-changer," if not at the very least something that can tide consumers and investors over until such time as a release is ready. The perception of Apple as a company with the unique ability to come up with ground-breaking products on a regular basis, once seen as a natural by-product of its very existence, has given way to an increasing chorus of doubts about whether such a product is even in the works. This situation is exacerbated by a notable lack of enthusiasm about projects the company has talked about, such as its revamp of the television-viewing experience.

As for the iPhone, it should be noted that sales of the 5 series have been strong at over 9 million before the end of Septmber, and the rolling out of the new iOS7 platform has been well recieved. But one of the company's goals in the 5 series was to finally offer a cheaper model that would be more friendly to the emerging market consumer. Unfortuantely, while sales of the 5c model have impressed, the 5s model, Apple's foray into commodetization, have been underwhelming.

Google, on the other hand, has benefitted from not being distracted by sales. The company makes most of its revenue from advertising dollars, and while last week's earnings release saw the ammount of cash Google recieves per-ad to have declined, investors were clearly unconcerned due to the sheer increase in volume of ad sales. The company is furthermore unencumbered by concerns related to the production of physical products, and with the present climate favoring large year-over-year increases in ad spending, particularly in mobile where Google is establishing itself as the dominant force, the company is is free to focus on expanding its presence as the face of the internet, offering free and extremely useful products that will inevitably monetize themselves.

The popularity of Android via primarily Samsung phones has been a large part of this picture, as the South-Korean company's Galaxy line has overtaken the iPhone as the most popular smartphone. Google has also had time, and perhaps more importantly a greater margin for error and experimentation with its forays into the production of physical goods. While the company's recent acquisition of Motorola has yet to produce any results, the recently released Chrome Book was a success, not only in terms of sales, but also in terms of integrating the two main aspects of Google's success by enhancing the snychronization between Chrome and Android, a combination that will be harder to beat as time goes one.

But none of this is to suggest that Apple is going anywhere anytime soon. The brand still commands massive market share, the company is still worth more than Google (and most other companies, for that matter), it has a lot of cash to spend, and it is one of the world's largest dividend payers. From the standpoint of investing, Apple offers many attractive benefits that are not dependent on share-price. The difference would seem to be that the two stocks have been and will increasingly cater to different types of investors, barring the possibility any earth-shattering product releases that extend beyond upgrades and mostly aesthetic reconfigurations of previous mobile devices. Google's however, still has a substantial future ahead of it as a growth stock.

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