Could Your Google Inc (GOOG) Shares Fall Into The Apple Inc. (AAPL) Trap?

To that it must be added that competitors are on to Google Inc (NASDAQ:GOOG)’s “secret sauce,” its relentless search for cost savings in delivering computing power and files to users. This is what led to Google’s cloud, to Google’s air-cooled data centers, to Google’s use of commodity hardware, and to its purchase of dark fiber, among other things.

Google Inc (NASDAQ:GOOG) isn’t best at everything it does. Yahoo! Inc. (NASDAQ:YHOO) is better on Finance. Amazon.com, Inc. (NASDAQ:AMZN) is better at monetizing cloud services. Apple is better at selling devices. Bulls may say this means Google has a clear path to growth. Bears might notice that the crown is already hanging uneasily on its head.

Google has a normal seasonal pattern. Its revenues are lowest in the first quarter, highest in the fourth. The bullish case for Google Inc (NASDAQ:GOOG) right now is based on how well it did with that pattern in 2012, a 22% gain in revenues between the first quarter and the fourth. But that was done by adding Motorola’s revenues, which were not profitable, to the mix. The company achieved better growth in 2011, without Motorola. It did the same thing in 2010. It did nearly as well in 2009.

Over the last four years, in other words, Google Inc (NASDAQ:GOOG)’s annual revenue growth from the first quarter to the fourth has averaged in the low 20s each year, peaking in 2011. Its ability to take revenue down to the bottom line took a huge hit last year, thanks to Motorola, and Google has been cutting costs relentlessly there to bring that hit down.

But Google Inc (NASDAQ:GOOG) is not accelerating. At best it’s on a glide path, and in fact its growth is slowing naturally, as its product-and-service mix changes and the numbers just get bigger.

My Foolish take

What happened to Apple Inc. (NASDAQ:AAPL) is that the numbers got too big to grow quickly. The same thing is starting to happen to Google Inc (NASDAQ:GOOG). People wondered about Apple, how can you maintain top-line growth with increased competition? You’re right to ask the same questions about Google.

At some point, either the earnings growth accelerates or the earnings multiple has to come down. When I bought my Google Inc (NASDAQ:GOOG) shares the multiple was 15. That’s close to the market averages. That’s reasonable. I think the current price is unreasonable. I’d be more likely to sell my remaining interest than add to it.

The article Could Your Google Shares Fall Into the Apple Trap? originally appeared on Fool.com.

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