Google has ousted Apple as a favourite among investors because of confidence in Google’s ability to capture advertising revenues.
Shares in Google rose 2.1% to $838.60 in New York on Tuesday, a 35% increase in the past year, compared with a 21% decline in Apple’s share price in the same period, despite a 2.6% gain on Tuesday.
In January, Google reported $14.4bn in revenues for the fourth quarter of 2012 and a record-breaking $50bn in annual revenues year, despite a fall in online advertising revenues.
The quarterly results beat analysts' expectations and were 36% higher than the same quarter the year before.
Apple remains the world’s most valuable company, with its market capitalisation still $100bn higher than Google, but Google’s shares are trading at 25 times profit, compared with a price-to-earnings ratio of less than 10 for Apple, according to Bloomberg.
This is the widest the gap has been since 2005, two years before the competition in mobile devices between the two companies began to intensify, said Bloomberg.
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Analysts say investors are willing to pay more for each dollar of Google’s earnings because of optimism that Google will grow its US online advertising market share further than the 40% it currently enjoys.
Google’s competitive position against Apple was boosted even further by Google’s alliance with Samsung Electronics to gain share in the mobile software market.
Analysts say that, while Apple has done well with its mobile devices, Google is benefiting from all areas of growth on the internet, including video, social, advertising and mobile.
By capturing 67% of the web search market and 70% of the smartphone software market, Google is well-positioned to benefit from the shift to mobile devices and to digital advertising.
Google has also moved quickly into mobile advertising, commanding 55% of the US market for mobile ad revenue in 2013 and 57% in 2014, according to EMarketer
Meanwhile, Apple’s revenue growth is slowing and its margins narrowing in the face of increased competition led by Samsung and other users of Google’s Android operating system (OS).
Smartphones using Android OS software make up more than two-thirds of the global market, while Apple’s iOS accounts for only 21%, according to IDC.
Apple is faces the challenge of releasing new products to build on the successes of the iPod, iPhone and iPad.
Analysts say the difference between the fortunes of Google and Apple highlights the strength, predictability and constant demand of advertising, compared with consumer electronics.
They say making money from services instead of devices is increasingly thought the better business model.