NEW YORK (TheStreet) -- When the major computing ecosystem companies -- Google (GOOGL), Microsoft (MSFT) and Apple (AAPL) -- host their annual developer conferences, they typically make long lists of announcements. It can be difficult hard to sift out what is important.
In order for a company to make a clear impact on its earnings per share and its stock price, it must do one of the following:
- Offer products at lower prices.
- Gain market share.
- Expand the size of its market.
Obviously, all developer conferences are also about product innovation and new features. Many of those improvements and advancements, however, can be a little amorphous. Many new features are either catching up to the competition or offering something that nobody was asking for and will never use. And then you have stylistic updates, from colors to fonts to new menu systems and notification pop-ups.
Still, what you want is more significant announcements that are not soft-soapy stuff that will be devoured mostly by the platform's already faithful. In this regard, I think Google delivered to varying degrees, and this was reflected by the increase in its share price during the Google I/O presentation:
1. Android One
Think of Android One as a cheap Nexus or "Google Play Edition" (GPe). Google will help hardware makers to establish a reference platform for smartphones priced at $99 or less, which is what required to sell to the next billion people. It will be a clean version of Android and get updates directly from Google.
Android One achieves all three impact objectives mentioned above: It enables the product to be sold for less, expanding the size of the market, and increases market share. Hence, it should lead to higher EPS and a higher stock price.
2. Ninety-Three Percent of Android Users Are on the Latest Version of Google Play Services
One of Apple's strongest arguments is that so many Androids are on old operating system (OS) versions. That is a legitimate complaint, but it is not the whole story. You have to look one layer deeper. A couple of years ago, Google started pulling important functions out of the OS itself and putting them into something called Google Play Services. The important core apps that you use -- Gmail, apps, maps and equivalent -- are being updated separately from the OS, and they contain more of the system experience within them. This partially compensates for the OS version itself being behind the current Android version.
3. Android Auto
Clearly, most auto makers will find some way to support both Apple and Google in the cars and perhaps other technologies as well. The question is about price, timing and emphasis.
Companies such as Volvo are making a big bet on Apple first. However, other companies such as Audi look to put their emphasis on Google first. With more than 25 car brands having signed up, and first cars rolling off the line within six months, I think the momentum is in Google's favor.
We will see as we get into 2015, but it looks that as a result of Google having over 80% of the smartphone market, automakers may emphasize Android compatibility over Apple's car initiative. In any case, the Google product looked more attractive to me than the Apple car system.
4. About That Watch Fad
I have my doubts that the smartphone extension onto the wrist will amount to much. People want to use fewer devices, not more. I haven't seen a user case for watches that adds value in terms of what I want to see or experience.
That said, for those who do believe in a decent market for smartphone-extended watches, Google is clearly ahead of Apple. Although Apple is widely rumored to be releasing its iWatch this fall, Google has several offerings from Samsung, LG and soon Motorola.
The Samsung and LG watches look a bit dull, but the Motorola 360 is beautiful. That doesn't mean that people will want to pay for it, or that they will find it useful at any price. However, at least Google has multiple plays in the market, while Apple continues to wait.
5. Android TV
How many TV makers build Apple TV into their TVs? Microsoft TV? None. Those remain external boxes for $99 (Apple) and $399 (Microsoft).
Starting in the next few months, Sharp and Sony (SNE) will offer Android TV embedded into their TVs. Having this as standard built into the TV is fighting from the high ground. You almost always get higher usage from something that's embedded and viewed as free, as opposed to when users have to pay $99 extra for yet another box, and then plug it in and configure it.
6. Chromebooks Get the Best Reviews
Google reported that on Amazon (AMZN) all 10 of the highest-rated laptops are Chromebooks. This speaks of superior user satisfaction. Regular folks find the simplicity, security and speed of Chromebooks to be just what they need.
Laptop-snobs who pay $1,000 and sometimes much more for laptops will keep claiming that Chromebooks can't do this or that. It appears that these esoteric functions are only something a small number of snobs do with their machines, and are not of utility to real people. As a result, Chromebooks continue to take market share from Apple and Microsoft's Windows.
7. Native MS Office Editing Inside Google Docs
This one removes a big barrier from "going Google." People send MS Office documents (Word, Excel and PowerPoint) and expect you to edit them, and then send back.
This has been difficult until now. When you convert to Google Docs, edit, and save back to MS Office, formatting and other content can get "lost in translation." This is unacceptable.
It was a hard problem to solve, but it seems to have been fixed now. It likely will cause further adoption of Google Docs and Chrome OS PCs (such as Chromebooks) by both businesses and consumers.
Which leads to the final point:
8. Fifty-Eight Percent of Fortune 500 Companies Have "Gone Google"
Many people with whom I have debated since the first Chromebook launched in December 2010 have kept saying Google will not make headway in businesses. But between Docs, Gmail and Chrome OS PCs, 58% of Fortune 500 companies are now using Google's products to some degree, and this was zero just a few years ago. Thus, all signs are that the percentage of companies that will "go Google" will get a lot closer to 100% soon.
All in all, Google I/O was not just about the usual new feature fluff. It was about important new products. These products lower prices, expand the size of the market,and increase market share. All of that will lead to higher EPS and higher stock price, all other things equal.
And that's why Google stock traded up during the I/O keynote. Shares of GOOGL were trading at $586.37 Monday morning, up 74 cents, or 0.1%.
Now let's look at TheStreet Ratings' take on Google.
TheStreet Ratings team rates Google as a hold with a ratings score of C. TheStreet Ratings Team has this to say about its recommendation:
"We rate GOOGLE INC (GOOGL) a HOLD. The primary factors that have impacted our rating are mixed, with some indicating strength, some showing weaknesses and 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 21.2%. Since the same quarter one year prior, revenue 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 23.16%.
- 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 33.07%, 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.
- You can view the full analysis from the report here: GOOGL Ratings Report
At the time of publication Wahlman was long GOOG, GOOGL and AAPL.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.