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There are plenty of battles being fought in the high-tech world of the Internet. The likes of Amazon.com (NASDAQ: AMZN) is now taking the hardware giant Apple (NASDAQ: AAPL) head on. Microsoft (NASDAQ: MSFT) is also trying to get in on the action by reinventing itself.
However, one of the most interesting battles being waged is between Google (NASDAQ: GOOGL) and Facebook (NASDAQ:FB).
They’ve both been on an acquisition spree of late. On the surface, they appear quite different. However, they both compete heavily for ad dollars. Google does that by focusing on search, while Facebook is the leader in social networking.
But here’s how Facebook can beat Google:
As mentioned, Facebook and Google are two companies in a heated battle for advertising dollars, with both generating over 90% of their revenues from ads.
Google has attempted to break into Facebook’s market by launching various social media platforms. However, these haven’t played out all that great. They recently closed down Orkut, and despite having a fair number of users, Google+ is still being dwarfed by Facebook.
Meanwhile, both haven’t had much success in the mobile handset market. Facebook’s partnership with HTC flopped, and Google has lost a lot of money on its Motorola Mobility deal.
Wearables will be an interesting space.
Wearables are the next frontier for the tech space. Both Goggle and Facebook are looking to make a splash in the area. Google has Google Glass and Facebook acquired Oculus. While Google appears to have a leg up since its Google Glass is already in the market, it’ll be interesting to see what Facebook can put together when it comes to meshing virtual reality and social networking.
Acquisitions also tell an interesting story.
Facebook has been embarking on an acquisition strategy that will reinforce its dominance in the social networking space. This includes its $1 billion acquisition of Instagram and the Face.com acquisition for facial recognition. Then, to top it all off, Facebook paid $19 billion for WhatsApp, a company that Google was also interested in purchasing. Although the price tag appears high, it was a successful attempt by Facebook to further shun Google from the social media space.
Google does own the search engine marketplace. But that part of the business appears to be a slow growth one. As a result, Google is being forced into a “moon shooting”strategy that involves taking on more riskier projects.
These include the likes of driverless cars, robotics and artificial intelligence. The other issue with these projects is that they take a long time to develop, pushing the payout even further out, if ever there is a payout.
Facebook vs. Google: What It Means for Investors
Google has a massive market cap of just under $390 billion, making it much larger than Facebook’s $170 billion market cap. Google even has a larger cash hoard, with a cash pile of around $59 billion, compared to Facebook’s $11 billion.
Google also trades at a much more reasonable P/E ratio based on next year’s earnings estimates. Its forward P/E ratio is 18, while Facebook’s is 36.
But that this doesn’t automatically make Google a better investment. While growth at Google appears to be decelerating, Facebook is still going strong.
Google has managed to grow revenues by an annualized 27% over the last three years. Meanwhile, Facebook has grown at a 58% annual rate over the same period.
Just last month, Facebook reported a very solid quarter. Its earnings and revenues both beat analysts’expectations. Revenues were up over 60% year over year and earnings beat consensus expectations by over 30%.
2015 looks to be another exciting year for Facebook. It’s planning on launching various new products that should help further monetize its platform. A few notable launches includes Graph Search, 3P ad network and Premium Video.
Facebook continues to find new ways to resonate with consumers. It’s already gained traction with mobile ads. For investors debating on which company in the tech space that could outperform over the long-term, Facebook looks to be well ahead of the competition.
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