Google Proves It Is Still Better Than Facebook

By Douglas A. McIntyre Published Apr 24, 6:30AM EDT

Facebook Inc. (NASDAQ: FB) has stolen Google Inc.’s (NASDAQ: GOOGL) place as technology’s hot company. Despite Facebook’s very modest revenue, its market cap stands at $230 billion, compared to Google’s $375 billion. Skeptics would argue that the spread should be much larger due to Google’s years of success. Google’s recent quarterly earnings show that Facebook has a very long way to go before it can even approach Google’s size.

In the first quarter of 2015, Google’s revenue rose 12% to $17.3 billion. Non-GAAP income, an important measure of the search company’s health, rose from $5 billion in the same period a year ago to $5.7 billion in the recent quarter. Critics believe that Google’s revenue growth deceleration proves that its best days are behind it. Optimists argue that its market share of advertising, both in the United States and throughout most of the rest of the world, is so dominant that it cannot be knocked off its perch.

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Facebook’s revenue in its most recent quarter grew spectacularly, from $2.5 billion in the first quarter of 2014 to $3.5 billion. Non-GAAP operating income rose from $1.4 billion to $1.8 billion. In the case of both Facebook and Google, the foundation of success rests on advertising. Facebook management claims that its share of this market will expand as more marketers see the advantage of social media as a means to reach consumers. However, social media has not broken through with marketers the way search did, perhaps because these marketers are worried that social media will never produce the financial returns that search does. Also, search advertising has proven essential to many business-to-business advertisers. Facebook cannot claim much substantial progress in this sector, which may give Google a permanent advantage.

Advertising market share will be the yardstick analysts use in the future as they examine whether Facebook can make the kind of progress Google did a decade ago. Google’s annual revenue was $16.6 billion in 2007, about the same as Facebook’s current annual run rate. Google’s 2015 annual run rate should reach $70 billion this year. There is no proof Facebook can match that, beyond its current growth. And that growth may well not last years into the future. Its business is too immature to tell whether the model can continue to expand at anywhere near its present rate.

Google’s financial results show that its position in the advertising industry will not be matched.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.