MS loses out in coolness race

Cool concepts like a self-driving car are driving investor interest in Google shares, which are gaining value at a faster pace than rival Microsoft.

---

Software giant Microsoft is rapidly being overtaken in the hot share race, as investors pump money into cool shares like Google and Apple, opting for innovation instead of maturity.

This week, search giant Google overtook software group Microsoft to become the second most valuable technology company in the world, when its shares closed at $761.78 on Monday, giving it a market capitalisation of around $249.9 billion. Microsoft closed at $29.49 on Monday, making its stock worth $274.2 billion.

Apple, seen as the cool technology giant, is currently the world's biggest tech company. It is trading at $661.31 a share and has a market capitalisation of almost $620 billion, close to its all-time high, while its shares are up 18 000% since it listed.

Google's rally has since cooled, and it closed at $756.99 yesterday, and was trading at $756.99 during Wednesday, making it worth $247.56 billion, just shy of Microsoft's market capitalisation of $248.65 billion.

However, investors rate Google's shares as being more valuable than Microsoft stock. The software giant reported its first quarterly loss as a public company in July after writing down the value of its ailing online unit.

Vesact analyst Sasha Naryskine explains that Google's surge - while Microsoft has stood still - is because investors see more value from Google, which is innovative, while Microsoft is seen more as a "utility" stock. "The market wants innovation."

Naryskine points to Google's self-driving car project as an example of Google's innovation. It is concepts such as these that give the share its "cool" value, making it more of a hot stock than Microsoft. "What sort of value do you put on that?"

Google CEO Eric Schmidt told Reuters in July that "self-driving cars should in our lifetime become the predominant way".

The wire service reported that Google launched its autonomous car programme in 2010, viewing the problem as one of computer science. It has tested its modified Toyota Prius and Lexus RX 450h cars over nearly 500 000km and is talking with almost every automaker about its technology.

Naryskine adds that most of Google's rally has come since about the middle of this year, as the share started surging ahead, while Microsoft remained flat. This is a shift in the year-to-date value, as Microsoft has outperformed Google in the past year.

Over the past three months, Microsoft has lost 3% of the value of its shares, while Google has gained around 30%. Over the past decade, Microsoft's share has gained 31%, while Google's stock has increased in value by 600% since it listed in late 2004.

In comparison, IBM's stock price has gained around 250% over the last 10 years, while the Nasdaq has seen a 155% improvement since the dot-com bomb, which turned blue sky into a black hole, adds Naryskine.

Naryskine says Google is gaining traction and increasingly encroaching on Microsoft's dominance because of the shift to mobile, and growing numbers of people having access to the Internet. He adds that Chrome is steadily eating into Internet Explorer's market share.

Google will earn more US display advertising revenues than any other company this year, topping the market with 15.4% share, according to new estimates by eMarketer. The milestone means Google now holds more share than any other company in each of the US search, display and mobile advertising markets.

In addition, Google controls the bulk of the search market and accounts for 66.4% of all US-based searches, while Microsoft only controls 15.9% of the market, and Yahoo has 12.8%, according to the latest figures from US-based research house ComStore.

Google reported revenue of $12.2 billion in the three months to June, and a profit of $2.8 billion. By comparison, Microsoft reported its first quarterly loss since going public in 1986 when it reported a net loss of $492 million for the fourth quarter, its latest results.

Naryskine points out that Microsoft started paying quarterly dividends back in 2004, while Google is still in innovation mode and does not pay dividends. Despite Microsoft's maturity and confidence in its cash flow, investors still rate the search engine as being worth more than the software giant.

Currently, Google is trading at 22 times future earnings, while Microsoft is trading at 14.8 times. Apple is trading at 15.55 times, as investors see more future value in the stock than in Microsoft's shares, although it still valued lower than Google.

The backlash around Apple Maps was positive for Google, says Naryskine. Apple CEO Tim Cook has written a rare apology to customers, admitting the new Maps application has fallen short of Apple's commitment to build products that offer the "best experience possible".

The Maps app replaced the extremely popular and widely used Google Maps application, which used to come pre-installed on Apple mobile devices. Maps has been criticised for its unreliability, inaccuracy, glitches and a lack of features users were accustomed to with Google Maps - such as transit information.

In August, Apple's market value climbed past $623 billion, surpassing the record set by Microsoft during the heyday of technology stocks in 1999. The share price figures strip out inflation.

Microsoft's current share price is a "long way" from its all-time high, which it reached in 2004, says Naryskine. Adjusting for share splits, the company was worth almost $58 at the end of 1999, he notes.