Market abuzz about Google

Stock in Google has topped $800 for the first time as the market sees more value in its shares than those of Apple.

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Shares in Google topped $800 for the first time this week and hit an all-time high yesterday, as sentiment turns towards the search giant and away from technology group Apple.

Google has been gaining ground on rival Apple in the key smartphone market, with its market share leaping 88% year-on-year, to 70.1% in the last quarter of 2012, when 227.8 million units were sold. In the rival tablet market, Apple is still ahead, with 46.3% of the total market of 52.5 million units in the last quarter of last year.

The market has valued Google ahead of its main rivals, Apple and Microsoft, and has placed an almost 25 times price-to-earnings valuation on the stock, compared with Apple at 10 times, and Microsoft at 15 times.

Google, which lost 1.78% on its share price to close below $800 yesterday, has been gaining stock market ground on Apple over the last year. The company is seen as more innovative, with projects like driverless cars and wearable technology, while Apple is increasingly being seen as ordinary, despite its rumoured smart watch concept.

Vestact analyst Sasha Naryshkine says Google hit an all-time high of $808.97 yesterday, mostly fuelled by news of its planned foray into physical outlets. "People are asking, 'what are they going to sell?'."

Naryshkine adds that Google is working on a touch-screen to rival ultrabooks, and its glasses project is also seen as cool. He says Google has probably figured it needs a retail presence like Apple, although 90% of its revenue still comes from search.

Google has developed interesting concepts, such as the glasses and driverless car, and has yet to reveal what it intends doing with Motorola, adds Naryshkine. He says its higher rating is driven by its innovation and ability to take products to market, even though it is still a young company that did not exist 15 years ago, and now has more than 15 000 staff.

Naryshkine says the higher market valuation is also driven by Google's Android operating system gaining traction in the smartphone segment. He says at some stage, it may enter the smartphone race with a "cracker jack" handset.

Android and iOS, the number one and number two ranked smartphone operating systems (OS) worldwide, combined for 91.1% of all smartphone shipments during the fourth quarter of 2012, the IDC said this month.

"Android boasted a broad selection of smartphones, and an equally deep list of smartphone vendor partners," says Ramon Llamas, research manager with IDC's mobile phone team. "Finding an Android smartphone for nearly any budget, taste, size, and price was all but guaranteed during 2012. As a result, Android was rewarded with market-beating growth.

"Likewise, demand for Apple's iPhone 5 kept iOS out in front and in the hands of many smartphone users," adds Llamas. "At the same time, lower prices on the iPhone 4 and the iPhone 4S brought iOS within reach of more users and sustained volume success of older models. Even with the Apple Maps debacle, iPhone owners were not deterred from purchasing new iPhones."

Android reached triple-digit growth for the year, driven by Samsung, which was the biggest contributor to Android's success, with 42% of all Android smartphone shipments during the year, says IDC.

"The intra-Android competition has not stifled companies from keeping Android as the cornerstone of their respective smartphone strategies, but has upped the ante to innovate proprietary experiences."

Apple's iOS posted yet another quarter and year of double-digit growth with strong demand for the iPhone, says IDC. "But what also stands out is how iOS's year-over-year growth has slowed compared to the overall market."

The two-horse race between Android and iOS has collectively accounted for more than 50% share of the smartphone OS market over the past two years, says IDC. At the same time, both BlackBerry and Microsoft have been working on competing platforms that have recently launched and are poised for competition.

Based on Android, people are raising their expectations of what Google can, and probably will, achieve, says Naryshkine. Over the past decade, Google has been crushed by Apple in terms of share price growth, as Apple shot up 2 800%, while Google only gained 631%, he adds.

However, says Naryshkine, in the past year, Apple has lost 10%, while Google gained 31% and in the past three months, Apple lost 20% and Google gained 13%. He points out, however, that their stock is being traded "like crazy," indicating short-term outlooks.

"It's all about sentiment; the sentiment is certainly negative towards Apple right now, and it's positive towards Google."

Top five smartphone operating systems, shipments, and market share, 4Q12 (units in millions)

Source: IDC