However, if Google is making phones, then its partners have to be thinking about finding a new mobile OS supplier. Even though there won’t be a wholesale shift away from Android, letting a third player into the market is a big risk. That third player increasingly looks like Microsoft Corporation (NASDAQ:MSFT), which received high marks for Windows Mobile in Nokia Corporation (ADR) (NYSE:NOK)’s Lumia phones.
Expensive
Google shares are trading with a trailing price to earnings ratio of around 27. Although that’s not outlandish, it indicates that investors are pricing in high expectations, and the shares trade near all time highs. The problem is that the company’s profit margins have been shrinking over the last two years, going from around 35 to 25 last year.
That’s a big change. If the company’s impressive top-line growth slows, tighter margins could quickly show up as bottom-line weakness and investors could jump ship.
Game System
Microsoft Corporation (NASDAQ:MSFT) and Google are already major competitors, adding a game console would just heat up the battle even more, since Microsoft Corporation (NASDAQ:MSFT) is set to release an Xbox update this year. Breaking the dominance of Microsoft Corporation (NASDAQ:MSFT), Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY), and Sony Corporation (ADR) (NYSE:SNE) in the game space won’t be easy, and it will likely ramp up Microsoft’s efforts to fight Google in other areas.
Microsoft’s lagging mobile performance has been a drag on its shares, but investors appear to see improvement there and have been jumping back in. Moreover, Microsoft’s PE of around 19 is far more reasonable, particularly since the company’s top-line has again started to head higher. And the 2.6% or so dividend yield provides a floor for the shares that Google’s dividend-less stock lacks. Growth and income investors should definitely take a look, though growth investors might prefer it to Google, too.
The Cheapest Option
Apple Inc. (NASDAQ:AAPL), however, might be the best bargain of the trio. Revenue growth over the past decade has been nothing short of amazing, with earnings traversing a similarly impressive trajectory. And, margins have actually been growing over the last few years. Although that can’t go on forever, even if margins plateau in the 30% range (down five percentage points from the 2012 tally), they will be notably better than Google’s.
And, investors concerned about the company’s ability to continue growing the top-line have punished Apple Inc. (NASDAQ:AAPL) shares. It now trades at a PE of around 10. That puts Apple in value territory. Add in a 2.9% or so dividend yield and growth and income investors should be looking to jump aboard.
Watch Out Google
Google faces notable risks, many of which are of its own making. Entering into more head-to-head competition only increases the risks. Investors looking for alternatives to high-priced Google shares should consider Microsoft’s rebounding mobile fortunes and Apple’s notably cheap shares.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Tech Giant Is Taking on the World originally appeared on Fool.com is written by Reuben Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
