Ostensibly, investors put their money into a company– an investment– in the hopes that the management team will create and sell products and services which deliver growing revenue and profits which, in turn, increase the value of the company and its stock. If that’s how you think it works you’d be wrong.
Emotion vs. Facts
As of today Alphabet, Google’s parent company, is sneaking up behind Apple Inc to become the world’s most valuable technology company (or, put another way, the most valuable company in the world). The company is no longer Google. It’s Alphabet, a clever name for a company that has one product of significance. Google.
GOOGL has grown in value since the name change because, you know, perception is reality. Meanwhile, AAPL has suffered in the past year because, you know, gloom and doom. Unfortunately, the stock market is rigged sufficiently that emotion drives stock more than facts and figures.
Count The Money
True, just like Apple, Alphabet has good financials. Google is the world’s most popular and profitable search engine advertising company, and the internet usage continues to grow in highly populated parts of the world (think India, China, Africa, Asia, and other parts of the less developed world). That means Google is the king of online advertising, makes money hand over fist, but has had much less success diversifying itself beyond that highly lucrative business model.
Google Glass? Fail. Google self-driving car? Have you seen one? No, Google’s (Alphabet) attempts to diversify largely have met with failure. Worse, the advertising business has become, like Android devices and Windows PCs, a race to the bottom as internet users rebel against having personal data culled and trafficked, and block advertising in ever greater numbers. That means the value of each advertisement continues to drop, the number clicks per thousand advertisements continue to drop, and the amount of revenue gained per advertisement continues to drop. This trend has been going on for years.
Google’s investments in new technology and business lines has met with failure at every turn. Motorola is a perfect example. Google bought a failing company, failed to make it worthwhile to bring in profits, striped it of value, and sold it to the highest bidder. When was the last time you saw a Motorola smartphone that someone was proud to show you?
Let’s compare GOOGL’s rising stock price to the company behind AAPL.
Compare & Contrast
Before the iPhone became the company’s most profitable product, it was iPod and iTunes that helped get Apple’s iconic icon in front of hundreds of millions of people. Prior to that, Apple was synonymous with the Mac. But all of Apple’s profit lines just a decade ago were wildly profitably by anyone’s standards, yet it was the iPhone that fueled the growth of AAPL, and most of that in Tim Cook’s era as CEO, not cofounder Steve Jobs.
Yet the iPhone is not Apple’s bread and butter the way Google and advertising is to Alphabet. The iPhone is wildly popular, crazy profitable, and sets the standard for smartphones, much the same way iPad and Mac set the standards for tablets and personal computers. All wildly profitable business segments. But lets not stop there. Apple added a nearly $5-billion business with Watch in 2015. Name another technology gadget that has done that with a new product in the first year.
Even Apple’s services category, which lumps in a bunch of non-categorized business units like Watch, Apple TV, iTunes, and others, is growing fast and at a rate exceeding $20-billion dollars a year. And those are all side businesses, and yes, wildly profitable, too.
GOOGL vs. AAPL
So, on the one hand there’s Alphabet’s GOOGL, a growing stock from a company with a single product line, and little else to show for tens of billions of investments, and Apple’s AAPL, a stock suffering because smartphones have reached a sort of penetration plateau which, while affecting growth of anyone who makes such devices, still leaves Apple with 90-percent of the industry’s profits. Otherwise, everything else Apple makes brings in profits that competitors only dream about. Mac, Apple Stores, iPod, iTunes Music Store, App Stores, iPad, Watch, Apple TV. Get the picture?
So why is AAPL down and GOOGL up?
It can only be because the market is rigged to reward certain companies by driving up stock prices where numbers do not match the buying excitement, while driving down stocks of companies where numbers tell an entirely different story. How can GOOGL, a company with little diversification and a single product that is floundering at a base level be more valuable than a technology gadget maker with over a billion very loyal customers, a company whose products own the premium and profitable end of every business segment?
If it defies logic and reason then there must be manipulation going on behind the scenes with market forces greater than the obvious. If that’s the case then the market is rigged.