Google Inc (NASDAQ:GOOG) recently announced that it will offer 15 GB of free cloud storage. Now, Google Drive is one of the most cost effective cloud storage services available. Google maintains a clear advantage in the cloud storage business as it already operates a huge network of datacenters to power its profitable search engine. Also, it has more than 420 million Gmail users that it can entice to use its free and paid cloud storage services.
Where is the Cloud Going?
Storage costs are falling and the world is becoming more connected. Between 4G cell phone networks and the latest fiber optic connections, people are able to transfer more data at a quicker pace. Also, using multiple computing devices like smartphones, laptops and tablets is becoming the norm. Cloud storage takes advantage of these factors by providing a central location to store and edit important files. Now consumers do not have to lug around as many external storage devices.
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Microsoft Corporation (NASDAQ:MSFT) doesn’t want to let Google Inc (NASDAQ:GOOG) shut it out of the cloud’s growth.
Google Inc (NASDAQ:GOOG) has an advantage over Microsoft in that Google’s search engine is profitable while Bing continues to bleed cash. Microsoft is working hard to make its online services division profitable. The online services division managed to decrease its operating income loss from $(480) million in Q1, 2012 to just $(262) million in Q1, 2013. Though internet-based and mobile computing continue to grow, Microsoft’s mobile OS has not performed as was hoped. Still, the company is trying to prepare itself for a mobile and internet based future.
Microsoft Corporation (NASDAQ:MSFT) is still a powerful machine. It boasts a gross margin of 79.9% and earnings before interest and taxes (EBIT) margin of 28.9%. This is comparable to Google Inc (NASDAQ:GOOG)’s gross margin of 63.7% and EBIT margin of 25.3%. Nevertheless, Google is more in line with the internet revolution. This strategic difference is seen in Google’s five year earnings per share (EPS) growth rate of 20.45% compared to Microsoft’s five year EPS growth rate of 3.83%.
Apple Inc (NASDAQ:AAPL) shouldn’t be forgotten. The huge number of iDevices and affluent consumer base give it a strong foundation to grow its cloud product. The iCloud only offers 5GB of free storage. Its paid option of 50GB at $100 per year is significantly more than Google Inc (NASDAQ:GOOG)’s option of 100GB at $60 per year. Another downside to Apple Inc (NASDAQ:AAPL)’s iCloud is that it is more difficult to use with other operating systems (OS) like Windows or Android.
Even though Apple’s iCloud isn’t the most cost effective or feature rich option, the company has more than 500 million iOS to relying on. Still, analysts expect Android based tablets to surpass iPad sales. If the numbers continue to move to Google Inc (NASDAQ:GOOG)’s favor, then Apple’s insistence to keep consumers on an iOS could become a greater liability.
At its current price to earnings (P/E) ratio around 11, Apple Inc (NASDAQ:AAPL) is still a good investment. It is very rare to find a five year revenue growth rate of 42.49% and five year EPS growth rate of 56.96% at such a low valuation.
Conclusion
Google Inc (NASDAQ:GOOG) has increased its cloud storage option; proving it is working hard to move beyond search. The company is still primarily an advertising network, but it recognizes the cloud is the wave of the future. Microsoft’s SkyDrive doesn’t offer as much free storage, but it is one of the most feature-rich options. Apple’s iCloud only offers 5GB for free, but overall Apple continues to grow. As an investment, Apple is one of the better options. Its P/E ratio around 11 is far below Google’s P/E ratio around 26 or Microsoft’s P/E ratio around 17.
The article Google Shows Its Dominance in the Cloud originally appeared on Fool.com and is written by Joshua Bondy.
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