Do You Own Shares of ‘The Fastest-Growing Network Thingy Ever’?
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ: GOOG) doesn't always release Google+ information with its quarterly financials, so it's encouraging to see new data that the tech giant has posted on its official blog. As we've covered in the past, Google's entry into the social networking space (see how E-Commerce Can Make a Key Competitor Billions) has fared well since its launch, and the blog post sheds some light on the success.
In the 17 months since its official launch, Google+ has become "the fastest-growing network thingy ever," according to the blog post. More specifically, Google says that over "500 million people have upgraded, 235 million are active across Google (+1'ing apps in Google Play, hanging out in Gmail, connecting with friends in Search...), and 135 million are active in just the stream," adding that it believes the size of its user base is because it is "building tools that build real relationships."
In addition to this announcement, Google also shared that it was adding two new features: topically organized "Communities," and a Snapseed app for the Android operating system. Interestingly, Snapseed is a photo altering/sharing app that is in direct competition with Instagram, and like Facebook (NASDAQ: FB) did earlier this year, Google acquired its developer Nik Software. Even more intriguingly, Snapseed was Apple's (NASDAQ: AAPL) "iPad App of the Year" last year, while Instagram was named the "iPhone App of the Year."
At the time of the September acquisition, Snapseed had 9 million users, which was close to only one-tenth the size of Instagram at that time. Only time will tell exactly how Google plans to monetize its growing social network, but theoretically speaking, a greater level of engagement on Google+ can boost the prosperity of its ad revenue. While reports vary, it appears that this is the area that Google still needs to work on -- its average user spends just three to four minutes on the site per month. Facebook, meanwhile, has a monthly time on site average of between six and seven hours, according to the Wall Street Journal.
From an investing standpoint, it appears that both companies are moderately attractive. Looking at Google, which is expected to grow its EPS by the mid-teens each year over the next half-decade, shares trade at a decent 15 times forward EPS, and its trailing earnings valuation is below its five-year historical average by close to 30 percentage points. In comparison to Apple (-43%), this discount isn't quite as low, but still important nonetheless.
When checking out Facebook's current valuation, forward earnings growth of 26-27% is expected annually, but the stock is still expensive for this potential, as its shares sport a whopping PEG ratio of 9.2. From a cash flow perspective, we can see that the company is valued much more closely to Google (5.6X to 5.0X), and is cheaper than other competitor LinkedIn (NYSE: LNKD) at 17.3X.
Even though much is made about Apple's $120 billion pile of cash, it's notable that investors are valuing it at a decently high 17 times its value, above GOOG, FB, and even Microsoft (NASDAQ: MSFT) at 3.4X.
On the whole, we think that Facebook has a bit more potential than its consensus earnings estimates indicate, as notable tech analyst Gene Munster believes that the company's entry into the e-commerce sector can help it to make "$10 billion in commerce-related revenue by 2015." While we don't know if Zuckerberg and Co. will introduce a quick-purchase option like the 'Want,' button for example, which Munster speculates about, the company's gift-giving platform is a step in the right direction.
Keeping this bullish forecast in mind, we can then see that Facebook's actual earnings valuation may be significantly lower than the metrics indicate, and cash flow valuation is already bullish. Google, on the other hand, is cheaper than it has been historically, and investors can't really go wrong with the Internet ad giant that is expected to grow earnings by a solid 15-16% annually over the next few years.
It'd be nice to see a regular dividend paid by the company, as Apple (1.9%) and Microsoft (3.4%) offer decent yield for income-seeking investors, but Facebook and LinkedIn don't offer a dividend either at the moment.
In the hedge fund world, some of the industry's biggest names were piling into Google last quarter, as it is the second most loved stock among the 400 funds we track, with 132 filers. With 146 managers holding positions, Apple is the top stock among hedge funds, while Facebook (43), Microsoft (96), and LinkedIn (28) have less interest. Some of the top names in Google include Stephen Mandel, John Griffin, and George Soros. Check out Soros' mammoth portfolio here, and continue reading at Insider Monkey for more Google and Facebook News.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in Apple, Google, and Microsoft. The Motley Fool owns shares of Apple, Facebook, Google, LinkedIn, and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, Google, LinkedIn, 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!