Earlier this morning, I received a research note from UBS Investment Research and a small graphic (left) caught my eye. It showed a stunning divergence in the fortunes of two of the most talked about companies of today: Netflix (s NFLX) and Google (s GOOG).
From the looks of it, you would think all is well in Google-land. After all, the search engine giant is king of the heap when it comes to search and search related businesses. It has just made an audacious move to buy ITA, a travel data provider that cuts its rivals at the knees. And from the looks of it, Android OS, Google‘s attempt to take over the mobile world, is off to a great start. But despite all that great news, the stock down 29 percent for the year or about $190 per share to about $436 per share. Netflix, in comparison, has nearly doubled for the year to $111 a share.
Writing about stock markets for a very long time has taught me not to pay much attention to short-term vagaries. Investors very well be finding Google too expensive, just as they are finding Netflix attractive. However, when I look at these two companies — I see too strikingly divergent strategies. And most importantly, two different abilities to come to terms with their true selves.
Netflix – a video delivery company – is all about focus — it wants to transition from being a company that dominates a business that is being calcified (DVD) to a brand new kind of business model — delivering atomized content to many devices via the network. It is doing so by focusing and having a strategy that helps it walk down the razor’s edge without bleeding. It is that focus that has helped the company to become a preferred partner for Hollywood studios. Today, Relativity Media is the first production house to eschew cable and instead opt for Netflix. Netflix’s focus on turning their service into a platform is winning them fans and imitators in unlikely places, such as the management team at Skype.
Google, on the other hand, is a company that is still searching for a revenue engine beyond search and advertising. In their domination, they seem to have antagonized a few nations. It is great to see the company seek new markets — mobile is as big as one can image and one can’t fault them for acquiring ITA — but they are facing a new reality: their core business of search is coming under pressure from the likes of Facebook, which is intent on changing Internet behavior away from ten blue links.
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