It is a revolution, or a resolution, for some it is both. The Dow Jones Industrial Average crosses the 15,000 mark. Investors are celebrating as it marks the first cross above 15,000. Part of what’s leading that valuation lead is Microsoft Corporation (NASDAQ:MSFT). Microsoft has rallied by 20.53% since the beginning of 2013. Microsoft’s advance is lifting up the Dow Component and is a primary contributing factor to the broad market strength. After all, undervalued equities are the first to be bid up in a cyclical stock market recovery.
Some are left scratching their heads, as Google Inc (NASDAQ:GOOG) for the first time is trading at a valuation that exceeds Microsoft’s. Currently Google trades at a market capitalization of $284.7 billion whereas Microsoft Corporation (NASDAQ:MSFT) is trading at a market capitalization of $278.7 billion. Google is pulling ahead of Microsoft in terms of valuation. The question all of you are beginning to ask, is why? Why Google, why is it loved so much by the street?
Google versus Microsoft
There are many ways to sell products and services on the web. But, by far the best way to do it is by doing it the Google Inc (NASDAQ:GOOG) way. Professions are being created, under the terminology referred to as Search Engine Optimization. These people’s sole job is to identify key search terms that are priced appropriately. Not only is it their job to find the right key-word, but also to make sure that the customers who click through the website are buying enough products and services in order to cover the costs of Google Search engine marketing. Many, many companies in niche markets have been able to gain market share, and grow sales by utilizing Google ad words, and Google AdSense. It is a revolution in marketing.
Source: Data from International Telecommunication Union with the data from 2012-2020 forecasted by Alex Cho
Currently the world-wide-web is only partially saturated internationally. With worldwide internet adoption expected to increase. Currently the internet users as a percentage of the worldwide population are 30%. This is expected to double over the next ten-years giving investors a compelling reason to stay the course with search based enterprises like Google Inc (NASDAQ:GOOG).
Google versus Bing and Yahoo!
Source: ComScore
Google still leads the pack in terms of the number of searches. Part of what has led to the -0.40% decline in search engine market share may have to do with Microsoft Corporation (NASDAQ:MSFT)’s ad-smear campaign, titled Scroogle. If you want to find out more about the ad-campaign, try to Google search, Scroogle.
That being the case, Google Inc (NASDAQ:GOOG) still holds onto a substantial amount of market share making it more or less unaffected by Microsoft’s childish advertising campaign. It is also unlikely that Microsoft will be able to gain any substantial traction in demand as its best attempt at punching Google in the face was the “Scroogle” ad-campaign. Google’s market dominance is pretty well-established, and it is unlikely that it will lose any of it any time soon.
Microsoft Corporation (NASDAQ:MSFT) and Yahoo! Inc. (NASDAQ:YHOO) are starting to be left behind. The demand for Yahoo’s display based advertisements have declined by 6% over the previous year. Whereas Google’s display based ads grew by 12% year-over-year. Google’s robust advertising platform is also strong. Google’ search revenues grew by 18% year-over-year. Yahoo’s growth in search revenues was 6% year-over-year comparatively. Google’s growth in both display and search advertising is what keeps investors highly optimistic of Google’s immediate future
It also helps to know that Google has been able to increase its international revenue. With Google’s international revenue growing from $4.8 billion to $5.6 billion between the 2011 and 2012 period. Google grew its international revenue by 16% year-over-year. When compared to Yahoo’s exit from South Korea, Google is doing a pretty admirable job internationally.
Conclusion
So the answer is pretty clear, why Google? Google’s advertising service for small and medium businesses is the best in the world. Perhaps even better than Facebook Inc (NASDAQ:FB)’s even though Facebook has demographic data about its users, Google has been able to offer actionable information to marketers that they are unable to find on other advertising platforms, like Bing and Yahoo! Inc. (NASDAQ:YHOO) search.
Google has been able to grow its search revenues consistently over the years and its market share saw a minor 40 basis point decline, after Microsoft Corporation (NASDAQ:MSFT)’s smear campaign. This just shows how dominant Google is, in search and web-based advertising, and how far Microsoft and Yahoo! Inc. (NASDAQ:YHOO) are when compared to Google. Google Inc (NASDAQ:GOOG) has been able to grow international revenues on a consistent basis which should keep investors up-beat on the long-term growth prospects of the company, especially considering that the number of internet users are projected to double. Google’s strong position domestically and internationally, paired with its strong search product is the primary reason for why Google trades at a higher earnings multiple than Microsoft.
Google’s 25.5 P/E multiple may lift eyebrows a little. However what’s behind Google is that it is solely focused on growth. With Google’s commitment to Google Glass, Android Play Store, and Google Fiber clearly demonstrates to investors that the company will expand its business portfolio even at the risk of sacrificing profit margins. Investors and analysts alike are hoping for growing cash flows even at the expense of flattening margins (just look at Amazon). Anyhow, Google Inc (NASDAQ:GOOG)’s in a strong position and its valuation is well deserved. Bravo, Google.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft.
The article Google Worth More Than Microsoft, Why? originally appeared on Fool.com.
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