Facebook, Google vying for growth as Alibaba IPO looms
SAN FRANCISCO -- Financial results from the five most valuable U.S. tech companies in the second-calendar quarter point to good market battles that will determine future valuations for Apple, Google, Microsoft, Facebook and IBM.
This week, let's look at online advertising, where the market disruption caused by a rapid shift to mobile ads has given Facebook the chance to take growth -- and growth-investor money -- away from Google.
While Google's 22% top-line growth for the June quarter shows how healthy its business is 10 years after it went public, Facebook is gobbling up digital ad money -- Google's core market -- a lot faster.
Facebook's advertising revenue shot up 67% year-over-year, lifting total top-line growth to 61%, as mobile advertising now comprises nearly two-thirds of the social network's sales.
Meanwhile, analysts estimate Google gets somewhere between a quarter and a third of its revenue from mobile. Researcher eMarketer estimates Google will capture about a third of the online ad market this year, while Facebook garners 22%.
In the fastest-growing U.S. tech market in any sector -- including hardware, software, Internet or telecom services -- Facebook is growing three times as fast as Google.
Yet the No. 1 social media company is still just a fraction of the size of the No. 1 Internet search company, as measured by revenue and market cap.
With both companies' latest financial results reported, Google as of Friday's close was valued at roughly $400 billion.
That's second only to Apple's $589 billion and about double that of Facebook.
The post-earnings surge of Facebook shares pushed its valuation to $193 billion.
Large-cap investors who want to own the best growth story in tech should have a horse in that race, either by owning shares of the up-and-coming challenger or those of Google, the incumbent leader.
Still, given that Nasdaq is trading near multi-year highs, some may want to wait for Alibaba's IPO, even though the line to buy shares of the Chinese e-commerce powerhouse will likely be a long one.
When Alibaba completes its long-awaited initial public offering in New York, now expected in late summer or early fall, the company's market valuation is widely expected to put it on or near the list of five most-valuable tech firms.
If history is any guide, however, retail investors who wait for some IPO froth to come off of Alibaba shares before jumping in will earn a better return than those who don't.
While Facebook has now doubled its IPO price, for example, its shares could have been bought months after that May 2012 offering for roughly half off.
Big institutional investors who are paid to find growth in the tech sector and are positioned to get some Alibaba IPO shares, on the other hand, will be buying them aggressively in coming weeks as the company's investment bankers come to town.
Alibaba's sales grew 57% during the nine months ended Dec. 31, to $6.5 billion, according to its initial securities filing.
As professional money managers decide what to sell to make room for Alibaba, many tens of billions of dollars of market cap will be at stake.
The same is true of the latest battle in the epic war -- in tech circles, at least --between Microsoft and Apple.
After decades of fighting it out in the market for hardware and software, the two giants -- whose sales are growing much slower than either Google's or Facebook's -- are now wooing the hearts of minds of investors with juicy dividend payments.