Google Getting Ahead of Itself

Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I happen to think that all of America's top technology companies make good investments. But the leaders take turns, and momentum investors can profit from seeing who's ahead, and who's behind, in sentiment.

For the year to date Amazon.com (NASDAQ: AMZN) has been the leader in gains, up 44%, against 28% for Apple (NASDAQ: AAPL). But look back just three months and you find Amazon stalled out, up just 2%, and Apple down 22%.

Meanwhile Google (NASDAQ: GOOG) has gone on-and-on, up almost 26% over the last six months. That's a massive gain of more than $50 billion in market cap. Is it justified?

Not based on the results announced during the period. Margins are down noticeably. But bulls will argue that's entirely the fault of Motorola, whose acquisition went into the numbers during the period. The maker of mobile devices was break-even when Google bought it, and since putting its own team in charge there, the company has been taking losses, laying off people, and paring the product line down to just a few products. Most Google bulls assume Motorola was mainly bought for its patents, anyway, to protect the Android line.

So look more deeply. Despite all the big talk about Android, Apple is regaining share in the mobile phone space, gaining a 53% share while Android has taken just 41%. That's a complete reversal of the trends a year ago. And remember that Apple never lost a ton of tablet share – iOS rules and Android drools.

The best sign of irrational exuberance in Google is the talk of it taking apart the Microsoft (NASDAQ: MSFT) Office monopoly. Yes, it wants all of that market, and it's scored some wins, but the product is not really competitive. Companies are licensing it because they want to buy technical support, and they think that at $50/user per year Google Apps are a bargain. They are. But they're not Microsoft Office, or anything like it.

The real challenge to the Microsoft monopoly remains what it has been for years: open source. Specifically, OpenOffice.org, now run through the Apache organization, and LibreOffice, a European offshoot created when Oracle (ORCL) was running the code base. A few years ago these were claiming market shares of up to 28% , but that's no longer the story.

Instead this is a cloud story. And Google isn't the only competitor for Microsoft here. As Marcus Erber wrote in July, IBM (NYSE: IBM) may be a more dangerous competitor, with its integrated cloud offering being run, currently, out of a “Greenhouse” unit. 

So the idea that Google is about to get 90% of the office market is simply nonsense. It can also be seen to be losing momentum in the key area of mobile. This doesn't mean it's a bad company, but it does mean its momentum can be seen to be slowing, at least in the stock market, and that investors who like rotating their technology investments might want to move out of GOOG and get a little more AAPL.  


DanaFBlankenhorn owns shares of Apple, Google, International Business Machines, and Microsoft. The Motley Fool owns shares of Apple, Amazon.com, Google, International Business Machines, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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