Google Soaring; Apple Struggling As Earnings Reports on Deck

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Covering Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) last year was truly a matter of keeping up with a tale of two tales. On one hand, I dissected the arguments from those who raved about how there was no stopping Apple because of its innovative products. On the other hand, I had to digest the rants from those who chastised Google for having too many pans in the fire. Many also note that the company may need to pay to its display ad revenue growth.

Now I, like many of you, patiently await the reports detailing the most recent quarterly earnings for the two tech giants. Don’t worry that I am about to bore you with rhetoric surmising that Google’s latest earnings reports will trump Apple’s…or vice versa. Instead, I’ll point out some of the facts that can’t be dismissed when evaluating the performance of these companies, their stocks and their investment worthiness.

A jarring indicator of Apple's struggles in moving its beloved iPhone 5 came bright and early on Monday morning through The Wall Street Journal. It reports that Apple is halving its orders for smartphone screens for the first quarter. In addition, the Wall Street Journal reports that the company is slashing orders for other iPhone components.

Google is set to release its earnings report for the fourth quarter and year end for 2012 on Jan. 22. Apple will follow it on Jan. 23, releasing its earnings for the quarter ending in December. This period is considered as the first quarter of 2013 for Apple.

Wall Street analysts have Google topping its Q4 2011 earnings per share, while they have Apple’s latest EPS being lower. Specifically, Google’s EPS for Q4 2012 is expected to be $10.61 versus $9.50 for Q4 2012. Apple’s EPS for Q1 2012 was $13.87. However, analysts expect it to only reach $13.34 for Q1 2013.

Challenge for Apple

The lowered expectations from analysts for Apple partly reflect the lower than anticipated number of iPhone 5s they expect Apple to have sold. For all the hype, several analysts have been steadfast in their predictions that the company failed to entice as many customers as they wanted to buy the phones. Amid all the guesses about how many of the smartphones were sold has come some solid numbers. AT&T (NYSE: T) announced last week that it sold more than 10 million smartphones in the fourth quarter of 2012, topping its previous record quarter of 9.4 million set in the fourth quarter of 2011. A caveat is that this total included AT&T’s “best-ever quarterly sales of Android” smartphones, as well as those from Apple.

A problem that can’t be ignored about Apple is the perception that its products are no longer the be-all-to-end-all. You don’t have to look any further than the embarrassing map app to see that the company is not beyond reproach. Now it seems to be hastily releasing more products. The iPad mini and rumored to be released soon iPhone 6 are among the devices some say show the company will be aggressive in staying competitive. That may be true, but concerns relate to how much the making of devices at lower price points than Apple’s premium devices may hurt the company’s margins.

There was a time when making a case for why Apple reigned supreme was easy. It was simply a matter of Apple’s devices making others look inferior in terms of their quality and offerings. That’s no longer the case. Samsung’s devices, mostly powered by Google’s Android operating system, are quite good. Then you have the myriad of other smartphone devices that are being chosen over the iPhone, and it’s not always because the devices are cheaper.

While Apple’s biggest challenge centers on producing devices and software that will continue to attract consumers, that is not the case for Google. As mentioned above, the company has several pans in the oven, including its massive search engine business. Other businesses include Google Fiber, its Google Cloud service, and the company’s foray into being a device manufacturer. These ventures are great because they give the company a foothold into other technology spaces. More than 70% of the company’s revenues come from display advertising, so it’s clear that if that slips, the company’s stock could be negatively impacted.

Google has been on a tear since the fall, despite a disappointing earnings report for its third quarter. And let’s not forget the early release of the report, in draft form, which also helped to sink the stock.

The market quickly shook off the disappointing release and the release snafu, however. The stock has once again soared past $700. This happened as Apple’s stock, which had been touted as likely to hit $1,000 sooner than later, struggles to stay above $550.

Google’s Challenge

A main challenge for Google this year and those following will relate to its display advertising. This is especially the case as the importance of capitalizing on mobile advertising grows. Consider this. Google loss market share to Facebook (NASDAQ: FB) in 2011. However, it regained the number one position last year, and is expected to retain it through 2014.

An advantage Facebook has over Google is its increasing growth with mobile advertising. Facebook carved out an estimated 18.4% share of mobile ad display revenue last year compared with Google's 17%.

Again, we’ll get a clearer picture of how these tech giants are faring when their earnings reports are released. These figures should serve as a guide in how you choose to, or not to, invest in either or both. I don’t see Apple rebounding to $600 anytime soon; investors are too anxious about the entire, “has Apple loss its mojo,” conundrum. That’s not the case for Google, which will likely continue to be an investor pick, especially if it shows a significant gain in revenues from display ads in 2012. The profits, hopefully not losses, from all of its other ventures will be just icing on the cake.

TwillyD has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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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