It has been less than two months since Google Inc (NASDAQ:GOOG) reported its fourth-quarter earnings. Since then the company’s shares have soared almost 20% to reach an all-time high. Google Inc (NASDAQ:GOOG)’s fourth-quarter performance was promising. The company very definitely surprised the Street with its reported revenue. Its fourth-quarter revenue of almost $14.5 billion surpassed projected revenues by more than $2 billion. This was a 36% growth from the previous year, and a 8% quarter-over-quarter growth. The company reached $50 billion in revenue for the first time in 2012. It also produced an impressive 12% EPS growth.
Currently, Google Inc (NASDAQ:GOOG) is on the verge of breaking yet another 52-week high. With a price target of more than $850, it is no surprise that shareholders and future investors all have their attention focused on Google. There is strong, widespread support for investing in the company. However, we need to compare it to competitors such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), to see if Google Inc (NASDAQ:GOOG) is a more secure and viable investment alternative.
The best of the three giants
While the aforementioned companies are not directly comparable, we can draw some insight by evaluating the differences in P/E ratio. Google Inc (NASDAQ:GOOG)’s P/E ratio of around 25 can imply that either it’s expecting strong future earnings growth or it’s overvalued. Judging from the company’s growing international expansion and implementation of several innovative strategies to maintain leading market share, I feel it is the former. The forecasted sales and earnings growth rate estimates speak for themselves — it still trades at a low PEG ratio of 1.2.
Although Apple Inc. (NASDAQ:AAPL) currently still has the highest EPS of the three companies, they’re predicted by some analysts to have negative earnings growth this fiscal year. This definitely is a red flag when considering a long-term investment. Apple captured a once in a lifetime opportunity with the iPhone, which led to an era of explosive earnings growth. Apple Inc. (NASDAQ:AAPL) has had its share of success, but now if it doesn’t renovate its business model, it could fall behind Google and Microsoft Corporation (NASDAQ:MSFT).
Mobile strength
Google Inc (NASDAQ:GOOG) has been able to capture more than 35% of worldwide mobile phone sales, while Apple’s share hasn’t gone significantly above low double-digits figures. Excluding low-end handsets — Google is even further ahead. Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) market share’s of 3% and 21%, respectively, are dwarfed by Google Inc (NASDAQ:GOOG)’s more than 70% stake in the market. In Europe, Android has increased its market share from 52% in 2011 to more than 60% in the first quarter of 2013. Moreover, on the manufacturing front, Samsung’s share also rose during the same period. As Samsung continues to hold Europe’s number one smartphone manufacturer title, and with more than one million Android devices being activated worldwide everyday, Android’s market share could go further up.
No doubt the current market shares are important in judging the strength of a company, but we should also evaluate the growth of their sales. Apple Inc. (NASDAQ:AAPL) has decreased from a market share of 24% in 2012 to 21% in early 2013. But the global smartphone market is enormous — so the diminishing market share does not necessarily imply that Apple Inc. (NASDAQ:AAPL) has lost some global presence, but it certainly does mean that it has stagnated a tad. Since Apple Inc. (NASDAQ:AAPL) now faces the heat of competition from many newly arising players in the mobile industry, it has to keep up with new innovative strategies for the iOS to maintain its current market share in the industry. On the other hand, Microsoft has gained more than 100% growth from early 2012. However, that growth was the result of just a 2% jump in the actual share price — it’s quite easy to grow when you start with a small share.
Search King
Doubtlessly, Google Inc (NASDAQ:GOOG) is still a leader in the search engine business, but Microsoft Corporation (NASDAQ:MSFT) is leaving no stone unturned to dethrone Google. Microsoft has already poured a fortune into developing the Bing search engine. Though the platform’s performance throughout 2012 was relatively positive, it’s still far behind the ever-growing rival Google’s search engine.
Bing could threaten Google if the latter’s growth was halted, but this does not seem to be the case. Google’s search engine share grew from 66% to 67% during the last three months alone, while Bing’s market share stood at 16%. The biggest problem with Bing is that it made large investments with mediocre returns. Moreover, it entered the market at the wrong time and tried to confront Google Inc (NASDAQ:GOOG) directly. I feel Bing’s future growth, if any, won’t affect Google much — as the latter continues to leverage its dominant position to bring in even more traffic, which will further widen its competitive moat in the search industry.
The bottom line
Despite a lagging global economy and all the competitive challenges, Google’s fundamentals have remained strong. It has been able to post strong numbers and positive growth throughout fiscal 2012. If we assess the EPS growth, we can see that Google’s growth will continue for years to come. With almost $50 billion in cash and cash equivalents on hand, strong projected growth, and future innovations, I believe that Google Inc (NASDAQ:GOOG) will produce higher returns on investments in the future.
The article Better Days Ahead For This Tech Giant originally appeared on Fool.com and is written by Nauman Aly.
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