Google: The New Tech Punching Bag

| About: Alphabet Inc. (GOOGL)


Google is taking shots from multiple directions.

Apple's Spotlight search dumps Google for Bing.

Samsung trying to cut Google ties with new Z phone.

For a premium valuation, Google can't take too many hits.

Everyone likes to take shots at the leader. How many teams get pumped up when they play the New York Yankees or Miami Heat? In business, everyone always tries to go after the leader in a particular space. At times, these big companies can literally becoming punching bags. Well, for Google (NASDAQ:GOOG) (NASDAQ:GOOGL), the company has taken a few shots recently. While they may not be killer blows, every shot at Google hurts, as this stock continues to trade at a premium valuation. Today, I'll cover the latest news for Google and what it means for investors.

Shots from two giants:

We all know that Apple (NASDAQ:AAPL) and Google are always going to battle. Google is trying to make a play for home automation items, and now Apple plans to enter the space. Apple's home automation plans are helping to highlight Apple's developer confidence. This conference features the launch of new operating systems, which will end up in Apple's next generation of devices that will come later this year.

In this year's upgrade, Apple has quietly taken a shot at Google. The Spotlight search tool is dropping Google as Spotlight's web search provider. Instead, Apple is throwing a bone to Microsoft's (NASDAQ:MSFT) Bing. Google is still the default search provider for Safari, but this is a notable loss. In the link above, StatCounter shows how this is a much needed mobile win for Bing. StatCounter estimates that Bing had just a 5.48% global mobile/tablet search share in May, of which just 1.77% was Bing proper, with 3.71% for Yahoo (YHOO). On the flip side, Google's share was 93.5%. Bing also replaced Google as Siri's search engine last year. Search Engine Land believes that this could be another move from Apple to wean people off of Google entirely.

The second shot at Google comes from Samsung (OTC:SSNLF). Samsung is launching the Samsung Z, the first commercially available smartphone to use the new Tizen operating system. The phone will be available in the third quarter of 2014 in Russia, and will later expand to other markets. The launch of this phone is seen as a way for Samsung to decrease its dependency on Google and its Android software. This could start a three prong battle between Tizen, Android, and iOS.

Why these small shots add up:

In terms of the big three, including Apple and Microsoft, Google is projected to have the most growth this year, next year, and perhaps a few more years after that. Nobody is questioning Google's growth story, as this company has been the best growth name in large cap tech land for the established names. However, that growth is all that Google offers. The company does not have a buyback program like Apple and Microsoft, and doesn't offer a dividend either. Dividends and buybacks can make a stock just as appealing as an extra level of growth. Microsoft and Apple are close to their 52-week highs currently, and value tech name Intel (NASDAQ:INTC) hit a new 52-week high on Tuesday. Google shares are about 10% off their yearly high.

If Google was trading at a comparable valuation, this wouldn't be that much of an issue. However, Google currently trades for nearly 21 times expected 2014 non-GAAP EPS. If you convert that number to GAAP, to compare apples to apples with the likes of Microsoft and Apple, you're probably close to 25 times. Currently, Microsoft is trading for less than 15 times expected calendar 2014 EPS, and Apple is around 14 times. That's a significant premium to pay for Google, a company that only offers growth.

Final thoughts:

Entering 2014 and through the first few months of the year, Google was the large cap tech darling of Wall Street. Now, Apple is starting to reclaim some of its dominance, and lately, Google has been taking shots from Apple and Samsung. Not only is Google search under attack, but so is the Android operating system. While the latest set of news won't kill Google anytime soon, it makes it harder to recommend the stock at such a premium valuation. Especially with some calling for Apple to rally a bit after its upcoming split, investors may want to wait for Google to trade down into the low $500s before buying. Google remains the best pure growth play in old school large cap tech, but right now, the shots are coming from multiple sides.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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