Google Still Searching for Right Mix of Innovation and Application

NEW YORK (TheStreet) -- Day one of Google's (GOOGL) annual developer conference in San Francisco answered many questions.

At the same time, the search giant affirmed many assumptions investors and analysts might have had about its ambitions: they're too scattered. More than anything this perceived lack of focus, which mirrors the fragmentation of its Android operating system, is at the heart of the many questions that still remain with Google's future.

That said, investors applauded what Google had to say Wednesday, sending the stock up 2.43%, closing for the day at $585.93, up 4.5% for the year to date. But can it last?

Wednesday we read reports of Google's Android TV, Google's set-top box aimed at competing against existing devices from Apple (AAPL) and Amazon (AMZN). But it's not groundbreaking.

There's also no clear path to suggest Google can emerge the victor in an already crowded space. Google is following market incumbents, not leading. Not to mention, any success Android TV enjoys will have to come at the expense of Google's already-popular Chromecast, which will be cannibalized.

Google also unveiled several Android-powered smartwatches. By partnering with LG and Samsung (SSNLF), Google is hoping to make a dent in a market where there are already several key players.

Both LG's and Samsung's watches will be available for order immediately. But Google stopped short of saying when they will actually be shipped, which suggests to me they are not yet in production. Some observers have -- justifiably -- asked, what's the point? But the point is clear.

This has all the makings of a clever tactic to get impatient would-be smartwatch consumers to pre-order now, which may take the pent-up demand away from Apple's highly anticipated iWatch. It is for this reason that Google said a third Motorola-version smartwatch will go on sale later this summer.

While this may make some sense from a competitive point of view, it also signals the lack of differentiation the devices are likely to have when compared Apple's iWatch. Recall, Apple has met with the Food and Drug Administration to determine the FDA's interest in regulating the iWatch's capabilities.

While Google seems interested in flooding the market with Android alternatives, a tactic used by Samsung, Apple is taking its time to ensure its smartwatch serves a practical and applicable purpose. This is a lesson Google is struggling to learn. Ubiquity and innovation are not synonymous.

Google also lifted the curtains on Android Auto, its answer to the battle for the automobile dashboard. Google said Android Auto-equipped cars, which will allow drivers to control the navigation, communication and music systems (among other things) will be available later this year.

But just like the Android TV and the smartwatch, the dashboard is also crowded. Apple unveiled CarPlay last year. To date, there are 12 auto manufacturers that already have CarPlay as part of their selling features.

When you consider Sirius XM's (SIRI) advances in telematics and the progress Sirius is making to secure its position in the automobile, one has to ask whether Google would not have been better off acquiring Sirius and its 26 million subscribers instead of tossing yet another Android option into an already crowded area.

For that matter, drivers considering Android Auto should be concerned given the degree of fragmentation that exists with Android. Because of this fragmentation, Android has become the haven for virus threats.

Google needs to address this level of fragmentation and lack of security before it can win any of these markets. While I have no doubt the company may eventually figure this out, investors have to decide how long they are willing to wait.

Google Glass brought the same level of excitement. It was innovative, but when was the last time you used one?

At the time of publication, the author was long AAPL.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

>>A Google Set-Top Box Would Do Absolutely Nothing for the Stock

TheStreet Ratings team rates GOOGLE INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate GOOGLE INC (GOOGL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 21.3%. Since the same quarter one year prior, revenues rose by 19.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although GOOGL's debt-to-equity ratio of 0.07 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.17, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has increased to $4,391.00 million or 20.86% when compared to the same quarter last year. Despite an increase in cash flow, GOOGLE INC's average is still marginally south of the industry average growth rate of 23.24%.
  • GOOGL's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.28%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet Software & Services industry and the overall market, GOOGLE INC's return on equity is below that of both the industry average and the S&P 500.

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