Two giants, one surprise and a still-struggling BlackBerry
While today doesn’t mark any particularly important day on the calendar as far as mobile technology goes, I thought it would be useful to pull up a one year chart of the stocks that make up the most relevant names to Mobile Nations. From largest market value to smallest, these are Apple, Google, Microsoft and BlackBerry.
Here’s the one-year chart for the bunch. This is a comparison chart so the time axis has all stocks starting together, like horses out of a gate, with a 0 percent change. I like the format because it’s so easy to see what’s happening on a relative basis.
The first obvious thing to note is that BlackBerry is the only stock to show a decline in the period, and you can really see how the Canadian firm started to underperform after the weak quarterly results from late June 2013 and again in September. In comparison to the three other major platform makers, BlackBerry did not demonstrate stability and paid the price in the market. We’ll come back to BlackBerry further down.
On the opposite end of the spectrum, Google posted the best stock performance over the last year, having risen more than 40 percent. Apple and Microsoft both still show very decent price improvements in the last year.
Look at the P/E
It’s worth pointing out that Google has the highest price-to-earnings (P/E) ratio of the bunch. In fact Google trades at about 19 times next years earnings forecast while Microsoft trades at 13 times and Apple trades at 11 times next year’s earnings forecast. BlackBerry is not profitable today, so its P/E ratio is irrelevant to any discussion right now.
For those of you just learning about stock analysis, the P/E ratio is a quick way to look at how big the expectations are on a company’s future results. Investors are buying a share of Google for 19 times as much as we expect them to make in profit next year. This means investors expect more future growth from Google than from Apple, which is the cheapest stock of the bunch. And Microsoft? It’s slightly more expensive (by looking at P/E) compared to Apple, but not by much.
I consider one year results to be short-term stuff. And in the short term, the market is a momentum machine. Notice how the stock with the highest expectations also has the highest one-year performance? Microsoft has the second-highest expectations and the second-best performance, while Apple has the lowest expectations and the worst performance out of the three profitable companies on that chart.
It’s also worth noting that Google and Microsoft, the two best performing stocks on the chart, are well-diversified beyond mobile. Google’s main business is online advertising while Microsoft’s main business is in the consumer and enterprise computing segments.
A few words about each company (or stock) on the chart:
It’s impressive that Google is dominant in so many markets. First came online search. Then the ads to accompany search. Then services such as Gmail to suck in more users and present more relevant ads. Then came video (the YouTube acquisition) and then more recently we have Android, the No. 1 mobile platform in the world. It should be no surprise that investors hold high expectations for the future. Google has been moving further into hardware and home automation (Chromecast release, Nest acquisition, and has obvious plays on wearable computing (Google Glass) and more out-there stuff like self-driving automobiles.
Apple has become more of a pure play on mobile. It’s obviously not a pure play, but the iOS business has grown so fast that it makes the Mac business look tiny by comparison. Apple is king of beautiful but more expensive products that are dead easy to use. Apple has posted record results and Tim Cook has clearly told us they’re launching new product categories this year. Yet investors hold very low expectations for the future. What gives? Simply put, investors are worried that Apple won’t be able to hang onto its price premium in the cut throat world of mobile. Google is, in my opinion, the largest reason for this investor concern.
Microsoft is a strange one. I left them for dead last year in the consumer market and I still feel like they are under enormous threat by Apple and Google. Windows market share is slipping, yet Microsoft continues to post very solid growth because of its dominance in the enterprise. That, along with the acquisition of Nokia and a big push to go after the emerging markets (which I think is absolutely the right strategy), gives them a solid chance of staying relevant in mobile.
This takes us to the smallest company on the list, BlackBerry. Last year at this time I was very optimistic BlackBerry 10 would become the No. 3 mobile platform. I wasn’t convinced a huge app ecosystem was important and there is one word for that opinion today. Wrong. Unfortunately, through a mix of poor marketing and inadequate population of their app store, BlackBerry was not a winning choice among consumers and Microsoft captured the #3 position.
Thing is … last year I thought there might be enough room for a No. 3 and a No. 4 in the space. But today I’m not so sure. Maybe all the folks who said there will be no #3 were right. In the mobile market I think apps are as important today as web accessibility was in the prior generation of devices. There are tons of niche markets, and the most popular apps in each niche need to be available for every successful platform. You don’t need a million apps. It’s actually harder. You need practically all the top apps that matter. If Microsoft can make it happen, they should do just fine. But if not, I think next year’s chart will look very different.
And BlackBerry has clearly made the right move in deciding to focus heavily on the enterprise. The market seems to think so too. Just look how the direction of the stock chart changed course in December. BlackBerry fans need to remember that BlackBerry is less than a $5 billion company (market value) today compared to over $300 billion for the smallest of the other three competitors. Winning in the device market is absolutely not required for BlackBerry to be a solid performer going forward. But staying relevant in the enterprise is relevant.
And there is always BBM. It’s clearly one of the best cross-platform IM applications out there, and aside from being an enterprise player BlackBerry should stand a chance at being a communications application company. There’s a lot of money to be made in displacing SMS over the next decade. Just look at Facebook’s $19 billion acquisition of WhatsApp as proof of what the big boys believe.
Personally, I own all of these stocks except for Microsoft. I’m most optimistic about Google and Apple, and I think it makes sense to own both stocks as the #1 and No. 2 players in the mobile industry. I still own BlackBerry based on the potential for a turnaround under John Chen’s leadership, and I think there is an increased chance he may ultimately sell to Microsoft after fixing the business. After all, Microsoft is the giant in enterprise.