Google Vs Facebook: Which Stock Should You Own?

  •  Google and Facebook compete for advertising spends globally.
  • The two are good companies meant for divergent investment styles.
  • Google and Facebook are both good investment opportunities for investors.

In our previous post comparing Google vs Facebook, we did a detailed review of the growing competition between the two in the online video advertising space. In this follow up post, we’ll walk you through a comparison of other aspects of their businesses, like market share, revenue growth, profitability and valuations to evaluate the two internet giants on the basis of their fundamentals. For those unfamiliar with either of these companies, you could watch our Google stock analysis and Facebook stock analysis videos for a quick roundup of their key fundamentals.

Google vs Facebook : Market Share Of Global Digital Advertising

Facebook and Google might not come across as direct competitors, given the diverging nature of their core services. However, with advertising revenue at the heart of their revenue models, they do compete for advertising dollars. At the end of the day, it all boils down to who is the go to company for online advertisers.

Projections by eMarketer bring out the huge gap between Google’s market share and Facebook’s market share of global digital ad-spends in total, and on mobile devices.

2013 2014
Google 31.55% 31.10%
Facebook 5.75% 7.75%

Google leads the race by a huge margin, accounting for over 31% of global digital ad-spends, followed by Facebook in a distant second, with 7.75% market share.

According to these estimates, Google is likely to have lost market share in 2014, while Facebook’s market share is likely to have inched 2% higher. However, given the huge difference between Google and Facebook, this trend might not be of great importance; at least, not yet. That said, it does indicate Facebook’s progress as an advertising platform.

Facebook vs Google Mobile Advertising Market Share

When it comes to mobile ad-revenue share as well, the case is similar. Google is way ahead of Facebook. However, on mobile devices, Google’s share of ad-spends is estimated to have declined sharply, while Facebook’s ad-revenue share of mobile shows a similar improvement of around 2%.

2013 2014
Google 46.6% 40.5%
Facebook 16.6% 18.4%

Source: eMarketer

Facebook vs Google : Revenue Growth

Of the two tech biggies, Google is obviously way bigger in terms of the revenue it brings in.
GOOG revenue chart

Google vs Facebook revenue chart by amigobulls.com

In Q4, for instance, Google revenue came in at over $18 billion, while Facebook revenue stood about $3.85 billion. Google’s revenue base is more than 4 times that of Facebook’s revenue base.

However, as one would expect, Facebook is growing at a much faster pace, given its smaller revenue base. In FY 2014, Facebook revenue grew by 58.4%, compared to Google’s revenue growth of 18.9%.

Facebook vs Google : Clash In New Businesses

As we’ve pointed out earlier, competition in online video advertising is growing by the day, which is also the case in every other ad-format. Understandably, both Facebook and Google are exploring alternate sources of revenue and some of those are common pursuits. For instance, online payments, a lucrative space with the likes of the recently launched Apple Pay and eBay’s PayPal, is one of those.

Google wallet has been around for a while, but hasn’t made the kind of progress Google would have hoped for it to make. Google’s Softcard acquisition could drive Google’s NFC technology based ‘Wallet’ on Android as well as Windows phones. However, the search giant is leaving no stone unturned in its quest for a successful online payments solution and is launching Google Plaso, a bluetooth based mobile payments service to supplement its presence in the NFC based payments space.

A Facebook payments solution is believed to be on the cards after the social media giant applied for an e-money license in Ireland which would enable it to process payments throughout Europe.

The online payments has quickly become a crowded space with entrants ranging from smaller entities like Square, reportedly an IPO candidate and tech giants like Amazon entering the payments space in the years gone by.

Not surprisingly, to close the loop, Facebook is also believed to be experimenting with a Facebook buy button and could be entering the e-commerce space to take on Google shopping express. There have also been hints of Twitter’s e-commerce push around the same time, as the microblogging site has been on the lookout for new ways to monetize its users.

Facebook and Google could also potentially clash in enterprise solutions space, as Facebook At Work not only takes on LinkedIn in professional networking, but also plans to get into the enterprise solutions space.

Facebook vs Google Profitability

Both Facebook and Google are profitable businesses. While Google’s profit margins have fallen marginally, Facebook’s profit margins have improved quite impressively.

In FY 2014, Google registered a net profit margin of 21.9%, down from 23.3% in FY 2013. Facebook on the other hand converted 23.6% of its revenue into net profits in 2014, when compared to a net margin of 19.1% in 2013.

Google vs Facebook Valuations

Valuations of Google and Facebook currently stand at the following multiples:

  • Google PE ratio: 25.3
  • Google Price to Sales ratio: 5.5
  • Facebook PE ratio: 74.5
  • Facebook Price to Sales ratio: 17.6

Evidently and as one would expect, Facebook valuations are way higher than Google valuations.

From an investors perspective the two options come with a clear distinction. Though Facebook valuations are way higher, the stock would give investors exposure to a company that’s currently growing way faster and also seeing an expansion in profit margins.

At these valuations, Facebook could be a riskier investment option and would appeal to investors who don’t mind a certain amount of risk when rewarded with strong growth and profitability.

Google on the other hand is a more stable company with rather steady growth and profitability, and naturally comes with lower valuations.

Google is one of our top stock picks and has returned over 23% since we added it to that list. Facebook could be an attractive opportunity with a 12.4% potential upside. This battle between the two tech giants will be an interesting one as it unfolds. For now, these are two good companies which serve different investment requirements.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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