Google vs Microsoft Part 1: Stocks

One of the hottest names in the tech industry, Google (GOOG) seems to be taking the world by storm, bringing all sorts of new products such as Google Wave, Chrome OS, and even their own phone. But is it really what it seems to be? Google’s strongest competitor is none other than the world’s 7th most profitable company: Microsoft (MSFT). 7th? That doesn’t seem TOO high does it? Well actually, it is, because the top 6 are all oil and gas companies and we all know how much of an energy demand we have right now. Microsoft is clearly a potent competitor to Google, and the reality is Microsoft is the future of the technology world.

Before we discuss the merits of Microsoft, let us simply tackle the fundamental problems with Google stock and their business.

Valued at $590 currently, this is far beyond their pre-recession values. That’s astounding, and the only reason it is like this is because of the perceived potential for growth. However, their percentage return on equity is only at 16%. Return on equity is simply the amount of earnings they have expressed as a percentage of total shareholder value in the company (which is assets minus liability). Compare that with Microsoft: an incredible 36%. In fact, Warren Buffet, the world’s most famous investor by far is known to only invest in companies with ROEs at least above 20%. That makes Google seem like a weak candidate. In addition, their operating and profit margins and return on assets are all lower than Microsoft’s. What’s more, it is clear that even insiders at Google have no confidence in their company. The amount of Google stock owned by insiders is less than 0.5%. The amount of MSFT stock owned by insiders is over 10%. Plus, Google Co-founders Larry Page and Sergey Brin who sit on the company’s board of directors do not hold any Google stock. That’s right, they hold 0 Google stock. They have no faith in their own company. Neither does the Google CEO Eric Schmidt. There is no real reason to invest in a stock that does not have the confidence of its executives. Google stock is simply not compelling.

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