Google has been working on merging all of its services into a single cloud computing model. By doing this, services like Google Docs, YouTube, Gmail, and the extensive Android phone line can all be merged into one data bank for advertisers that allows them to target specific clients across all services. This makes advertising easier on Google Inc (NASDAQ:GOOG) than on Facebook, which has just the one site and its mobile operations; this is especially important as advertising is the main source of revenue for both companies. Google+ may be secondary in terms of active users, but it is part of the Google cloud that advertisers love and this gives Google an advantage over Facebook.
So while Facebook Inc (NASDAQ:FB)’s status as king of social networking might not be in doubt, Google stands to make a lot more money off advertising across all services. This makes it a better advertising opportunity for companies than Facebook in the long run.
Is it a bargain at $24 per share?
Despite Facebook’s initial problems, there are still investors who are willing to buy into the company as it continues moving towards becoming a business rather than just a website. At $24 per share, the company’s stock might seen like a bargain compared to what it sold for initially. Stock price alone doesn’t make it a bargain, however.
It certainly wasn’t a bargain initially, owing largely to a $104 billion initial valuation that in hindsight seems to be more about shock value than an actual serious number. It also started out with an atrocious price-to-earnings ratio of 515, meaning that this company was too expensive for what investors could get out of it in return. It also had a negative cash flow of $59 million last quarter, though it ran a $719 million profit from operations initially.
Today Facebook’s forward price-to-earnings ratio is much more reasonable at 30.82, though it’s still on the high side compared to Google’s 16 forward price-to-earnings ratio. Facebook Inc (NASDAQ:FB)’s profit margin is a rather minimal at 1.22%, though its operating margins are a solid 9.66%; this means that Facebook has good operating margins, but its profits leave little room for error as a result of high liability and debt levels.
So even though Facebook is becoming more of a bargain, it still isn’t a bargain that most investors will want to snap up at this time. For those that are optimistic enough about the company to look past the risk, however, the price is definitely low enough for them to take the chance. Google appears to be the real bargain between the two as it has more ways of making money through sales and continued development. Facebook may get better once it fine-tunes its business operations. For now, though, it isn’t exactly a winner.
The article Mark Zuckerberg Meets His Critics originally appeared on Fool.com and is written by John McKenna.
John McKenna has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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