Since taking over as Google (GOOG) CEO on June 17, 2011, Larry Page has had his company pointed straight up. The share price is up 55% in that time and is now within spitting distance of $800/share.
The Google co-founder, who took the hot seat after a decade training under Eric Schmidt, Page has made some smart moves. He has pared down the company's offerings, he has focused on profit, and (while the jury is still out on its profitability) he has moved Google strongly into consumer electronics, buying Motorola and then doubling-down with Chromebooks and Google Glass.
I would even be willing to call letting Marissa Mayer go a smart move. Her ambitions would have gotten in Google's way, and having her at Yahoo (YHOO) will keep all of Google on its toes. Just like a good coach wants to see his or her former assistants succeed elsewhere, so Mayer's success burnishes the reputation of Google as a management training ground.
But I think that investors may be taking Page too far and too fast. His deathbed conversation with the late Steve Jobs, in which Jobs famously suggested he focus on just a few things rather than trying to do everything, reads now almost like a passing of the torch, as though Page was being anointed as Silicon Valley's king in Jobs' place, and not Apple (AAPL) CEO Tim Cook.
Here's a suggestion. Don't buy legends. Don't buy trends. If you want long-term profit, buy results.
Page has some good results. Profitability has recovered from the Motorola hit, approaching 25% again in the fourth quarter. Top-line growth has been 40% year over year, although the research budget has increased even faster, growing to nearly $2 billion, a gain of almost 50%.
But the game remains afoot. Despite all the talk about how great things are at Google, Apple still achieves better margins than Google and is more than three times bigger, with sales of $156 billion dwarfing Google's $50 billion. Despite this, changing fashion means that Apple is worth just under 60% more than Google.
That's just silly. I own shares in both Apple and Google, and while Google has treated me much better lately I'm using this opportunity to increase my Apple holdings. There's no way that Apple's earnings are currently worth less than half what Google's are, but that they are.
Fashions change, and you can take advantage of them. When everyone is zigging, zag. Larry Page is doing a fine job, but right now he's overrated. And Tim Cook is underrated.