Google tops $800. It's the new Apple ... for nowFebruary 19, 2013: 1:17 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Remember when Apple could do no wrong? Now Wall Street iHates Apple ... and the tech infallibility torch has been firmly passed to Google.
Shares of Google (GOOG) topped $800 for the first time Tuesday. The stock is now up more than 13% so far this year. Google has gained nearly 45% since hitting a 52-week low last June.
Meanwhile, Apple (AAPL) is down more than 13% so far in 2013 -- making it the third worst performing stock in the S&P 500. And since Apple hit its own all-time high last September, its shares have plunged 35%.
But how long can this last? Google does have the momentum right now. But as we've witnessed with Apple, it may not take much for sentiment to shift.
I think Google is a fantastic company. But a couple of things worry me about the stock.
Following Apple is innovation? The recent reports that Google may follow the lead of Apple and open Google retail stores seems like a potential flop. Hardware isn't the first thing that comes to mind when you think of things that Google does great ... even after the recent acquisition of Motorola.
What would Google stores sell? Just Google-branded products? (Check out that driverless car and Google Glass! Or even better yet, test "drive" the driverless car while wearing those weird Google glasses) Or could Google stores also be a place where you can buy phones and tablets running on Google's Android operating system that are made by Samsung, HTC and others?
Either way, opening stores could be a costly mistake for a company that not too long ago preferred to let word of mouth do all the talking for its brand. (Now it's hard to watch TV without seeing an ad for Chrome.)
If Google now feels the need to spend this aggressively on marketing, that could be a sign that it's not as innovative as everyone thinks. Some of Google's other me-too initiatives have not panned out that well either. Google+ (or as I like to call it, Diet Facebook) anyone?
Show me the money! Another potential issue? Google, much like Apple, has gobs of cash and has not yet shown a willingness to part with that much of it. Google ended the year with $48.1 billion in cash.
Yes, Google has been more aggressive with acquisitions. But Google clearly has a lot left over that it could give back to shareholders. What about more stock buybacks? Or a dividend? Google is the only tech giant with an 11-figure sum of cash that's not yet paying a dividend.
For now, investors may be tolerant of Google's miserly ways. But that won't last forever. Just ask Apple. Or Microsoft (MSFT). Or Cisco (CSCO). Or Oracle (ORCL). At some point, Google is going to have to prove to Wall Street that there is a legitimate need for that much cash.
Maturation is tech's worst enemy. Perhaps the most amazing thing about Apple's stock run of the past few years is that the company did it as a decades-old firm. But Apple, to its credit, reinvented itself. It went from an also-ran in PCs to a leader in categories it is largely responsible for creating.
Now that investors are worried about Apple losing its edge and not having anything new up its sleeve, the company's stock is falling. It's being viewed as a company that has peaked. That could happen to Google unless it shows Wall Street that there is more to its business model than advertising.
For all the talk of Google's futuristic product plans, the addition of a hardware business through its Motorola acquisition and the success of Android, the company is still almost entirely dependent on the whims of marketers: 87% of its revenue came from advertising in 2012. In 2011, Google generated 96% of its revenue from ads.
So yes, there has been progress in lessening Google's dependence on a fickle and highly cyclical market. But not enough to escape this simple fact. Google's growth -- while still strong -- is slowing. Analysts are predicting that earnings per share will increase by an average of 14% a year for the next five years. That's impressive ... but it's a far cry from the 21% a year on average that Google put up over the past five years. And that brings me to my last point.
Google's stock is not cheap anymore. Does Google really deserve a valuation of nearly 18 times 2013 earnings estimates considering that its growth is starting to slow to the mid-teens? Look at the valuations for other mature tech companies. Apple and Microsoft now trade at just 10 times fiscal 2013 earnings estimates. IBM (IBM) is valued at 12 times 2013 earnings projections.
You can't argue that Google deserves a big premium over other old tech companies just because it's in a more dynamic sector either. Google's projected growth rate is not that much higher than Yahoo's (YHOO), and it is lower than AOL's (AOL) and Facebook's (FB).
Once again, Google is a phenomenal company. If I were Google CEO Larry Page, I'd be as "super-excited" about the future too. (And if I were chairman Eric Schmidt, I might be second-guessing that decision to sell a big portion of stock only to see shares rise further.)
But no stock can go up forever without some hiccups. And that's especially the case in tech. Apple is proof positive that investors can quickly fall out of love with a stock as fast as they became infatuated with it.