Since the release of the iPhone in 2007, I have focused a large percentage of my investing dollars in stocks in the mobile industry. Initially, I traded the device makers Apple, Nokia and Research in Motion. My love (mostly) hate relationship with RIMM is well documented on my blog.
After reading the Morgan Stanley Internet Report in December of 2009, my emphasis shifted to identifying companies that I believed would fail to make the transition from “old school” cell phones to mobile computing. My article “The Four Mules of Mobile” initiated months of “debates” on whether certain companies would crash and burn. I am currently not short any companies, so there is no need to get riled up about me hating on your favorite device maker. I am now on the third permutation of my mobile strategy that was outlined in my blog “Mobile Stocks that Got Game.”
Over this 3 year period I can’t recall owning Google for more than a week or so here and there. Google is without a doubt a major force mobile. Android is growing like weeds. So, how can a mobile strategy not include Google? The bottom line is that not all great companies have great performing stocks. Since January 3, 2007 to date Google is up 28%. That’s a little over 9% per year. That’s better than a sharp stick in the eye, but that doesn’t make my cut off. As a stock trader, I have one requirement for my portfolio companies – its stock must go up A LOT!
There is something that has always bugged me about Google. It has nothing to do with P/S, PEs or anything like that. It’s that 99% of the people that use Google products pay absolutely nothing to use it [99% is an exaggeration]. I realize that Google is a very profitable company and generated $8.4 billion in revenue last quarter. However, I believe with so few people paying to use Google products it inhibits the company’s ability to maximizing profits.
Eric Schmidt, CEO, once rhetorically asked “If we have a billion people using Android, you think we can’t make money from that?” All it would take, he said, is $10 per user per year. In my previous life, I worked as a software sales guy for a high tech company. There was absolutely nothing in the world harder than increasing the price of a product. Customers hated it. I don’t believe a $10 user fee would generate the $10 billion business as Schmidt suggests.
In contrast, Apple generated a $10 billion dollar iPad business almost overnight. While Google suggests, Apple executes. I believe that Google’s stock price is going to continue to disappoint until it proves that can create other multiple billion dollar business units other than search. In the mean time, there is absolutely no reason for me to tie up capital in Google while it gets its act together. The opportunity costs are too high.
Disclosure: Long AAPL.