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If You Had to Buy Google or Microsoft, Which Would It Be?

October 18, 2012 | About:
Intelligent Speculator

Intelligent Speculator

6 followers
The market seems undecided on the question as both companies are currently worth more or less the same thing. As of writing this, Microsoft is valued at $248 billion while Google trades at $247.8 billion.

Even though both companies are competing with each other in almost all of their segments, they are incredibly different and have different strengths and weaknesses. Today, I take a stand, as I’ve been a believer in both of the names in recent months. You could argue either way depending on what type of investor you are.

Feel free to answer this before or after reading this post but I’d love to hear, which would you buy?

With both companies announcing earnings today, my opinion might change a bit depending on what comes out in a few hours.

A Few Numbers

I’m big on numbers and love to see charts, so here are a few:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBeta
GOOGGoogle Inc755.4930.1722.1915.1516.9729.284.61199.210.96
MSFTMicrosoft Corp29.592.0210.88.9716.265.44.337.920.91


Here are revenues and net income:

Revenues (quarterly, in billions)

revenues1.png

Net Quarterly Income

income.png

From a numbers perspective only, the fact is that Microsoft makes far more money and that Google will need to keep up the growth for a significant amount of time in order to catch up. In terms of income though, excluding the last quarter (which we should), Google’s margins are clearly lower. There are many other factors to consider though:

goog.jpg

Google’s Business:

-Has the leading mobile operating system, Android, which most Apple competitors are now using

-The undisputed leader in search, the entry point online

-Struggling to compete with Facebook (FB) in social despite launching going “all-in” with the launch of a solid alternative product, Google+

-Has been working on many potential high profile such as robot car driving, clean energy, which could end up bringing revenues and profits in the long term

-Has been able to develop several other leading products such as the top browser, Chrome

-Is slowly becoming a major competitor to Microsoft’s Office thanks to its Google Docs suite

-Continues to take risks and experiment as is currently shows by its attempt at providing high speed internet in Kansas City through Google Fiber

GOOG.png

msft.jpg

Microsoft’s Business

-Highly concentrated revenues and profits from two sets of software (Windows OS and Office)

-Faces increasing competition as the market evolves to cloud-based software

-Has emerged as a market leader in gaming through the xBox, which is also an entry into the living room of most families

-Has announced what seems like a very promising table device, the “Surface” which arrives a couple of years too late as Apple’s iPad and Amazon’s Kindle have captured the market

-Does pay a steady cash dividend that is set to increase steadily over the years

-Has a struggling online division despite investing billions of dollars every year to compete in search

MSFT.png

The Bottom Line

Both stocks are very good values and which one you choose depends largely on the trading perspective or what your objectives are. Obviously, dividend investors would go for Microsoft and someone nearing retirement and looking for a growing, stable and safe pick can’t go wrong with Microsoft. Someone who is investing with a 20-year horizon or willing to take more risk would probably side with Google as the upside remains significant.

I would probably go for Microsoft in my retirement accounts and Google in my speculative accounts. If I really had to make one pick, I’d probably go for Google at this point: The upside seems significant compared to the risk.

What are your thoughts on Google and Microsoft stocks? Which one would you go for?

Rating: 3.4/5 (9 votes)

Comments

dennisyap
Dennisyap - 1 year ago
Go for Google. Do not forget Google own Youtube as well.
Compradore
Compradore - 1 year ago
You left out MS' server and tools division, which makes up over a quarter of their revenue, and even more of their profit.

They are two completely different companies, contrary to everything you've said, Google is an ADVERTISING company. They have their hands in online content, eco system, smartphones and tablets, etc. but the only thing actually generating meaningful revenue is advertising.

MSFT is a software company, and is focused on moving towards more of an Apple business model.

Please leave your comment:


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