Sometimes I feel like I could write a daily blog about Google. Things move that quickly and while a lot of this stuff has limited impact on the short term revenues and earnings, I do still think they do matter when trying to determine Google’s (GOOG) longer term value. Why? Because even if one of these long shots (self-driving cars, Google glasses, Google fiber, same-day shopping, etc) turns out to be a game changer (as in multiple billion dollar business), Google’s value would be significantly impacted.

Google’s Retail Aspirations

Last week, I wrote a post on SeekingAlpha where I heavily criticized Google’s idea to compete with Amazon, eBay and others in the same day shipping segment. I said Google should instead focus on physical retail stores (i.e. similar to Apple stores) and Google Fiber. One week later, very interesting news as Google confirmed it was expanding its Fiber service and will be servicing Austin, Texas by mid-2014. This is fascinating. How Google is able to offer a service that is so superior to what traditional cable makers can do at a lesser price is truly amazing. I can’t tell you how excited I’d be to be in Kansas City or Austin. In many ways, Google is truly changing the way we get access to television and the internet. It’s putting a lot of pressure on AT&T and others but I have yet to see them come up with a viable answer. That being said, Google is moving slowly on this front and it will be interesting to see how this evolves over time.

As a consumer, I’d obviously love to see Google start to expand rapidly on Google Fiber but the tricky part is that it’s difficult to know how profitable Google Fiber is and how much it helps further its other goals (faster internet, more use of its products, Youtube progress, etc)

Android Concerns

The major news these days concerns Android though with a few stories breaking:

-Microsoft (MSFT) and other allies have started complaining that Google is abusing its dominance of Android (they’ve already complained about abuse of search) to promote its other products. How roles have reversed as Google was making such complaints 15-20 years ago against Microsoft’s dominant Windows position. It’s unclear where such complaints could lead in addition to legal bills and decade long battles

-Facebook: I saw the following Tweet which I loved:

Think about it.. Facebook and Google have been fighting for years now over the future of the internet, how social will be used, etc. Now, Facebook is taking over a Google Android instance and building its own phone with HTC. Talk is that over time, Facebook would start replacing Android features by some of its own (including search). Can you imagine how ironic this is? I can only imagine how worrying this might be to Google execs. It’s far from certain that this phone will be a big hit.. but what if it did?

-Samsung Dissociating Itself From Google/Android: Just a few weeks ago, Samsung announced its latest S4 phone to great anticipation. One of the more surprising aspects was the fact that Samsung barely mentioned anything about Android. In fact, it seems to be launching some services, apps and other services that will compete with Google’s. In a world where Apple and Samsung are the two dominant players and the S4 is the only phone to compete with the iPhone, I have to think this is very worrying for Google.

All of that being said, let’s not kid ourselves, Android remains an incredibly valuable platform even though it does not directly generate revenues. But the past few days have certainly raised a lot of questions and I think it’s important for any who either holds Google or is considering doing so to follow all of these stories

What are your thoughts on Android’s value and do these stories worry you at all?

Apple’s (AAPL) stock has been off to a tough start to the year so far as you can see in the below chart. It continues to generate tons of opinions, from believers, bears, dividend investors and even activists. I’ve personally been a believer and while it’s been a great bet in the past few years, this year is not turning out as well. That being said, I’m likely going to be taking a bigger long term position on Apple in the coming days. Why?

Upside vs. Downside

I always look at possible investments in terms of the potential upside vs. downside. In Apple’s case, let’s start off with some numbers:

So basically, Apple is trading less than a 10 P/E ratio. To give you an idea, AOL(AOL) and Microsoft (MSFT) both trade at comparable P/E ratios, but are growing revenues and earnings per share at a fraction of Apple’s growth.

The vast majority of Apple’s revenues come from sales of iPad and iPhone devices. They have both lost market share but remain at or near the top in fast growing markets so to say that Apple’s growth will decline might be true but there’s still a lot of growth left, no doubt about it.

Significant Upside

My argument also relies on the possibility that Apple will come out with a few more big products.

-Yesterday, Brian White of Topeka Capital Markets published research saying that Apple will launch a 60 inch Apple TV later this year (that would also come in 50 and 55 inches) that would be synced with smaller screens/tablets for users wandering around the house among other features. If you remember, Steve Jobs had hinted he had figured out how to do TV.

-There have been many rumors that Apple is working on an iWatch.

-Apple still has a lot of expansion planned for its existing products such as having T-Mobile start selling the phone, expansion in China and other markets, etc.

These and other products might not make it. But think of the past few things that Apple has launched.. iphone, ipad, macbook air. Not that bad right? Don’t you think there’s at least a shot that new products give a boost to short-medium term growth?

Don’t Wait

Yesterday, following that research note, Apple outperformed the Nasdaq by a decent margin. It’s certainly possible that the report ends up being wrong, but if such rumors start coming out, the stock will rise significantly. If you want to wait until official announcements come out, chances are that you’ll miss almost the entire rally. With little to lose and a lot to gain, I’d argue that this is a great time to go long Apple.

Disclaimer: Currently long Apple (long-short trade vs NILE) and will likely go longer in the next few days

As many of you know, I’m a big believer in Google (GOOG) as a long term play because of the significant upside in many of its projects such as Google Fiber, Glasses, and so many other features. Recently however, I’ve been seeing another side of Google. In the era led by Larry Page, Google has adopted a “startup” mode where everything is happening much more quickly. Google is launching dozens of products/ideas and then terminating those that do not meet its “success criteria”. In theory, that certainly makes a lot of sense.

The Other Side

What I’ve been discovering though is that there is a another side to this type of behavior. For several years now, I’ve been using a product that you may know: Google Reader. It helps me filter news (through a technology known as RSS) from about 100 different sites/blogs. RSS never truly made it mainstream but there are still a few million users from what I understand. Then.. Google made this announcement a few weeks ago:

image credit

Google will be killing off the product in July. It will be joining other former Google products such as iGoogle, Google Video, Google Wave, Google Buzz, etc. This is very upsetting to me but I do appreciate the head’s up and I understand the business decision.

image credit

There is another consequence though…

When Google decides to launch new products such as Google Keep, a competitor to “Evernote”, it makes me pause. Should I start using this product knowing that a few months or years from now, Google could end up terminating it? Or should I stick with Evernote which is clearly committed to this product? Would I start using Google’s new same day shipping service? Or stick with Amazon or eBay which are more likely

I’m Not Alone Here

What if millions of Google users start wondering about using new products because they fear what Google will end up doing with it? It’s not something that makes me worry about buying Google stock right now but I’ll certainly keep it in mind and continue to monitor this.

What are your thoughts? Were you a user of one of those products? If so, does it impact your perception of Google?

The online travel industry is one of the most competitive ones because there are several established players fighting together (Expedia, Travelocity, Orbitz, Priceline, etc) along with some newer ones such as Google and some local players like Facebook, Square, etc. Some of you have doubts about the importance of the “social layer”. As anyone who has read my opinions Facebook (FB) knows, I’m not part of that group. I have a firm belief that players like Facebook bring tremendous value.

At some point, Tripadvisor started leading the way in terms of bringing social to travel. How does it work?

At first, visitors looking to book a hotel probably would have looked to websites such as:

Priceline.com (PCLN)
Kayak.com (recently acquired by PCLN)
Expedia
Hotels.com
Travelzoo
Etc

That behavior has started to change. Instead, users go to Tripadvisor as their starting point. Why? Because they can find great reviews by fellow travelers as well as friends and family (through TRIP’s Facebook integration). Then, they are able to look for a rates at all of those sites at a click of a button. The new model looks something more like this:

In the end, it’s better for users because they have better knowledge of the top hotels that fit what they’re looking for. For TripAdvisor, it’s an amazing business as they can basically auction off the sites that they offer to their users. In a way they are sending visitors away to competitors, making money out of the process. The great thing about it though is that those visitors will go right back to TripAdvisor the next time they’re looking for a trip. I’m actually a good example. In the past few weeks, I’ve booked a few trips and about a dozen hotels. I could have gone directly to Kayak because that is where I usually end up booking my hotels. Instead, every time I went to TripAdvisor, looked through hotels for the perfect hotel (in terms of location, reviews, facilities, etc). Then, I would click on the booking links and get prices for 3 or 4 websites. At each instance, those sites paid out money to TripAdvisor.

In an ideal world, companies like Priceline and Expedia would be able to build a competing service in order to stop paying for visitors over and over and have guys like me start off their booking tours on their websites instead of TripAdvisor’s.

It’s Not That Easy

The fact is that TripAdvisor has the community and it’s something that is incredibly difficult to replicate. Just ask all of those companies, including Google, that have tried competing with Facebook. It might happen at some point but I would put my money on TRIP for now. You won’t be surprised to see that traffic has been growing much faster at TripAdvisor than for its competitors, just look at these charts:

I would argue that because of all of these reasons, and how unique TripAdvisor is, it deserves a premium valuation. Look at these numbers..I personally think TRIP could end up going significantly higher over 1-2 years:

I’d love to hear your thoughts on TripAdvisor (TRIP)

Disclaimer: Long TripAdvisor

I’ve discussed this a bit in the past but I have such a strong belief that I thought I’d revisit this. We live in an increasingly digital world and while there are hundreds of companies in the race to provide valuable and profitable services, only a few are able to dominate. Why? Because they’ve been able to build strong ecosystems that make it very difficult for others to compete.

What Do I Mean By Ecosystem?

Think of 4 companies: Google, Apple, Amazon and Facebook. These companies have all used very different ways to get it done but they have each built an ecosystem. They have core products that are so strong that they can attach other offerings very easily either by building it themselves or by getting outside help. Here is a brief summary:

-Apple (AAPL): This one is probably the easiest. Apple has an incredibly strong lineup of products dominated by the iPhone, iPad, iPod, etc. They all evolve in a closed ecosystem where developers and content producers can sell their content (generally through iTunes).

-Google (GOOG): Google started off with the best search product but that has evolved over time to a browser (Chrome), an email client (Gmail), the top mobile operating system (Android), an ISP (Google Fiber), the top video platform (Youtube). Google is able to combine all these products together to create unique products such as Google now and an overall experience.

-Amazon (AMZN): Some would argue that Amazon doesn’t quite fit. I would argue that point. Amazon has built the top ecommerce ecosystem in the world with an exceptional distribution network, that enables it to sell its physical stuff, but also articles from third parties. Amazon also controls the ebook market and is increasingly taking over other markets such as physical books, cloud storage/computing, etc.

-Facebook (FB): I fully expect some of you to argue that Facebook does not belong here. Time will tell I guess. The company is the top social network, has the control over how thousands of companies manage their online marketing campaigns, etc. Being at the center of how people connect with each other and with their favorite products and brands gives Facebook a lot of very valuable knowledge that makes it easy for Facebook to allow developers to build on top of its platform but also to offer its own products.

Competitors Struggle To Compete With Advanced Ecosystems

I could name many high quality products that are facing competition from these 4 names. The problem of course is that these 4 can easily launch products expecting to make little to no money for several years. If it makes their ecosystem better for users and helps them take out competition, that is good enough. Just a few examples:

-Online music: I’ve already said that I’m very skeptical of standalone names like Spotify and Pandora (P). The problem is that they’ll end up competing with Apple (iTunes and upcoming radio service), Google (launching a music subscription service through Youtube), Amazon, etc. How will they be able to compete?

-Wearable Devices: It’s the new “cool” thing with companies like Fitbit and Jawbone offering products that I personally love and believe in. But Apple is reportedly working on the the iWatch, Google is already in advanced testing of the iWatch, etc. Those devices will be connected to ecosystems that already know a lot about me which seems like a huge advantage.

-VOIP: Products such as Skype have had huge success but I’m not sure how they can compete with Facebook’s VOIP offering as well as Google Voice, etc. Most of us already have the Facebook app, have our contacts in there.. so why would I install Skype then go through all of the trouble of adding contacts, etc?

I’d Go Long Some Or All Of Them

This is a long term trade and I’ve already explained why I believe in Amazon (AMZN) and Google (GOOG) over the long term. I’m a believer in Apple and a Facebook shareholder. So yes, I do think these are terrific plays. One of them could turn into the next Microsoft (MSFT) and it’s still early in the game so difficult to call but I’d put money on the fact that holding these 4 names over the long term will be a winning strategy.

Disclaimer: Long Facebook (FB)

Apple (AAPL) has been one of my favorite stocks for a long time and while yesterday it turned out to be a great pick, the company is struggling a bit more this year. Why? There are so many different reasons. But I’m starting to think that Apple could soon be added to the Ultimate Sustainable Dividend Portfolio.

Apple Does Not Fit The “Typical” USDP Candidate

No doubt, in many ways, Apple would not fit in. Why?

-Dividend growth under 2.50%
-Basically no dividend history

I would argue that those should not be considered as much for Apple. Why? One important point is that Apple has just initiated its dividend and is likely to increase it significantly in the near future. Why?

-Cash Flow: Apple is generating billions of dollars every quarter and the dividend payments are a tiny part of those leaving a lot of room for increases

-Pressure: Apple is under a ton of pressure to better use its use cash reserves ($117B!) and the best way to get that done is to increase that quarterly dividend. Even if it increased by 20% or so, the yield would move past 3%

Just look at these numbers? I’d say that Apple could easily double its dividend and while I don’t expect that to happen, I do think the dividend will increase over time. Analysts currently expect Apple to increase its quarterly dividend to $3, an increase of 13%. Think the company can’t afford it? Actually, the last time Apple is not make over twice that amount in earnings per share was in 2010 (before the ipad).

AAPL EPS Diluted TTM data by YCharts

AAPL Dividend data by YCharts

You can also see some numbers for Apple:

Will Apple come up with other hits to keep it relevant? There are certainly rumors such as the iTV or the iWatch. I’d argue that even with its current line-up, paying and increasing its dividend in the long term should not be a problem. Yes, a bet on Apple is more risky than the typical dividend play but I would argue that it also adds a lot more upside.

What are your thoughts? Would you consider adding Apple to your dividend portfolio?

Disclaimer:  Long Apple (AAPL)