Google Is The New Microsoft

Apr.18.12 | About: Alphabet Inc. (GOOG)

An analyst on CNBC had an interesting take on Google (GOOG) Tuesday. He compared Google today to Microsoft (MSFT) in the late 90s, when it entered into a "lost decade" as far stock price appreciation goes. It was a provocative thought. After looking at it though, it seems to have some validity, and Google holders could have years of disappointment ahead of them.

Bear the analysis out. First, it already appears that Google is halfway through a "lost decade," judging by their stock chart.

Click to enlarge.

Click to enlarge

In addition to a stock that has gone nowhere in five year, Google today and the old Microsoft share some other traits.

1. Both started to slow appreciably when they hit got to over 30,000 employees.

2. Both became huge targets for regulators both domestic and abroad. Among other actions recently on this front:

  • a. The company got hit with a fine for willfully stonewalling the FCC.
  • b. Was forced to defend its privacy policy to the main European watchdog.
  • c. This privacy policy is also being reviewed by regulators in Korea and other countries.
  • d. TripAdvisor has asked European regulators to look at Google's anticompetitive behavior.
  • e. U.S. regulators are probing Google's latest privacy breach.

3. The company is also finding itself spending more and more time in litigation:

  • One of primary reasons it spent $12.5B to acquire Motorola Mobility was to get its hands on its 17,000 patents so it could better defend itself in lawsuits.
  • The company's YouTube property faces a variety of lawsuits including this one.
  • And of course, there is its highly visible court fight with Oracle (ORCL).

4. Just like Microsoft had to deal with a nimble upstart named Google, the search giant now faces a well-funded and growing behemoth named Facebook (FB).

5. Microsoft have major challenges finding revenue streams outside of its core "Windows" and "Office" franchises in the 90s, Google faces the same challenges in trying to find an income generator outside its core search and advertising models, despite many tries.

6. Finally, the company is starting to be accused of arrogance. It is best shown by the reaction to its stock split decision, nicely written up by Sorkin in the The New York Times.

Ironically, while I would avoid Google for the reasons outlined above, the humbled Microsoft has been a core position in my portfolio for a year.

Disclosure: I am long MSFT.