Google usurps Apple as darling of Wall St

The co-founders of Google are almost $10bn wealthier than they were just a year ago, according to the Forbes Rich List published this week.

It is one of the many eye-watering statistics thrown up by the annual ranking of the world's wealthiest. The ballooning fortunes of Larry Page and Sergey Brin, who founded Google while studying for PhDs at California's Stanford University in the early 1990s, will not have come as a surprise to Wall Street.

Shares in the world's largest search engine have jumped almost 15% since September 21, the day that rival Apple's reached a record high. Apple shares have since slumped 38pc on fears that the Silicon Valley company will not be able to deliver a successor to the iPod, the iPhone and the iPad - consumer gadgets that profoundly disrupted entire industries. Analysts say it is no coincidence that shares in the rivals have been marching in opposite directions during the past six months.

"Investors are looking for a good growth story," says Brian Weiser, an analyst at Pivotal Research. "With Apple fading, it is a place for the money to go." Google's fourth-quarter results underlined the resilience of a business which - more than any other - has been able to turn our love affair with the internet into hard cash. Profits climbed 7% to $2.9bn, while revenues for the final three months of the year hit $12.2bn.

Despite the efforts of Microsoft's Bing, Google still lords it over the competition when it comes to search. The company enjoyed two thirds of the US market in December, as Bing trailed with 16pc and Yahoo! had just 12pc. If Google's dominance in search is well-established, it is the company's ability to compete in the multi-billion dollar smartphone market that has caught Wall Street's eye of late.

The Android software that Google developed is the operating system in 72% of the world's smartphones, including the increasingly popular Samsung, dwarfing Apple's share, according to the latest figures from technology research firm Gartner.

"If you look at the market share, they are unstoppable," argues Carolina Milanesi, an analyst at Gartner. It is a dominance that helps ensure Google remains the default search engine on most phones, allowing it to corner more of the advertising revenues that follow. The rally in Google shares, which dates back to June 2012, has also vindicated those who believed the stock market has historically failed to appreciate
the strength of the company.

Although their share prices have experienced divergent fortunes recently, Apple and Google have long shared a reputation for putting the short-term preoccupation of shareholders fairly low down the list of priorities. At Google, it is best represented by a governance structure that allows Page and Brin to control all key decisions. At Apple, it has been seen in the company's reluctance to return more of its $147bn in cash to investors.

As Tom Cook, Apple's chief executive is now discovering, it is a strategy that works when investors are rushing to buy your shares. So, as Apple contemplates new measures to return more cash, some are asking whether the giddy rally in Google shares has overlooked the substantial challenges still facing the search engine?

Like its rival Facebook, Google is still battling to increase its revenues from adverts on mobile devices, the smaller screens of which mean that rates are about half those for desktop computers. There is also a longstanding concern that, for all their unquestioned success as innovators, Page and Brin are far too happy to plough money into ventures that do not pay off. Take the dream of retail stores like Apple's, its green energy venture or the Google Glasses that will be able to perform many of the functions of a smartphone and that the public were given a new glimpse of last month. "They say they are going to run these ventures for profit but caution is warranted on Google," says Weiser.

The past six months show that, whatever the considerable benefits, the adulation of Wall Street comes at a cost. When it stops, it does so brutally. The rally in Google shares is on a much smaller scale to that enjoyed by their Silicon Valley neighbour, but Apple's experience is one Page and Brin would do well to learn from.