Difference Between Facebook and Google

free essayThe paper provides a comparative analysis of two global leaders in the high technologies industry: Google (the current name of the company is Alphabet Inc.) and Facebook, Inc. The review is based on the published annual 10-K SEC filings for the financial year 2016 that are publicly available on the  web sites of both firms. The stocks of both corporations are traded in the US Nasdaq Stock Exchange. The GOOGL shares are traded at USD 954.84 as of 10 May 2017 with the total market capitalization of USD 650.16 billion., Meanwhile FB shares are quoted at USD 150.29 as of 10 May 2017 with the total market capitalization of USD 436.05 billion (Market Watch, 2017). The total change in the stock price of FB since it started its trading in 2012 and up to date constitutes an increase of 293.10 %. The price per share of GOOGL rose by 1661.45 % since its IPO in August 2004. Both corporations have a strong market position, stable growth prospective, highly qualified management teams, and a focus on innovations. There have been no letters from CEOs and management discussions published either by Alphabet or Facebook for the past years. Further, the paper provides the SWOT analyses of both companies, evaluation of their financial performance and strength, overview of the latest news and current situation, a short description of external audit issues, and a final recommendation on potential investments in their shares.

Facebook SWOT analysis

Strengths:

  • A strong brand name: the name of Facebook is known to nearly every Internet user across the globe that can be effectively utilized for the promotion of its advertising services and expansion of the user network;
  • A strong operating cash flow and high volume of revenues generated: in the year 2016, the cash balance of the corporation increased by 60% and revenues enhanced by 54% against the previous year;
  • A focus on the research and development that makes the company one of the leaders in technological innovations: over USD 5.92 billion was invested into the research and development in 2016;
  • A zero long-term debt and lease obligations: the company has no solvency risk and manages to finance nearly all of its operations with the additional paid-in capital from sale of own shares and earnings retained for the business development;
  • The largest social network: the company maintains the volume of daily active users of 1.23 billion on average and monthly active members of 1.86 billion; it represents an increase of 17% over the past year.

Weaknesses:

  • The services provided by Facebook are relatively easy to imitate: in fact, there exist several social networks that are quite similar to it and provide nearly the same advertising opportunities and other services to their customers and the users’ network;
  • The low diversification of activities: in 2016, the business of Facebook Inc. comprised developing the main social network Facebook and related applications, including Instagram, WhatsApp, Messenger, and Oculus, while generating the revenues primarily from selling the advertising place on them (97 % of the total corporation’s revenue figure);
  • The adverse perception of the users’ network towards the volume of online advertising: Facebook has to limit its advertising space in order to prevent the loss of its active users.

Opportunities:

  • The development of new markets: Facebook needs to extend its operations in the developing economies, including China, India, and Africa that provide a strong opportunity for growing the number of active users;
  • The innovation: Facebook has extensive resources to create new technologies in the sphere of online business, including networking and mobile applications;
  • Business diversification: developing new ways of generating revenues using high technologies and innovations can significantly improve the position of Facebook in the market and further enhance its revenue figure.

Threats:

  • The protection of intellectual property: the company has to invest heavily into the creation of effective protection ways of its intellectual property. However, still, the threat remains that some portion of information valuable for it will become available for competitors. Moreover, some personal data of its users will become public due to a cybercrime resulting in the significant loss of reputation and respective lawsuits;
  • The government regulations: the recent amendments in the US and European regulations of personal data protection might have a negative impact on operations of Facebook;
  • The intense competition: Facebook has to compete with such global leaders as Google and Twitter.

Get a price quote

Google SWOT analysis

Strengths:

  • A strong brand name: the word Google has already become a synonym to the online search that ensures its popularity among Internet users worldwide;
  • The enormous data storing and processing capacity: equipment and properties owned by Alphabet are able to store and process more data than any other search website and online database;
  • The business diversification: Google generates the revenues from advertising, Google properties, selling Android operating system rights, earning on YouTube and mobile applications (e.g., through Google Play), and via other paid services provided to the active users of Google;
  • The constantly growing revenues, cash balance, and total assets: net revenues of the corporation has nearly doubled since 2012, while the balances of cash and total assets have enhanced by 80 % and 81 % respectively; it indicates a strong financial position and effective use of the market growth opportunities;
  • A strong solvency position: Alphabet Inc. also has a very low proportion of total and long-term debt in financing its business operations in the past years.

Weaknesses:

  • The success of Google is highly dependent on the availability and level of acquaintance with the Internet: it limits an opportunity for growth in some developing economies;
  • The adverse perception of advertising by users: it considerably limits the volume of advertising revenues generated by the corporation;
  • Most services are easy to imitate: there are virtually no switch costs for users and very low starting costs in the industry; thus, there is a high potential that services of Google are imitated very closely and lose their market presence.

Opportunities:

  • The development of the market of mobile users and investing into mobile applications: while most smartphones sold today exploit Google’s Android operating system, the corporation has enormous opportunities for developing in this business;
  • Investing into consumer electronic devices: Google has a high potential of developing a new business line with investments into Android based line of the own electronics and communication products, such as smartphones, electronic books, and smart watches;
  • The development of non-core business revenues: Google can effectively exploit an opportunity for growth in the sphere of robotics and medical equipment.

Threats:

  • – The intense competition: Google faces a considerable competition as a search engine, information database, mobile applications’ seller, and advertiser from social networks (e.g., Facebook and Twitter), Yahoo Mail, other search engines (e.g., Bing), etc.
Save 25% on your ORDER Save 25% on your ORDER

Exclusive savings! Save 25% on your ORDER

Get 15% OFF your FIRST ORDER (code: leader15) + 10% OFF every order by receiving 300 words/page instead of 275 words/page

Financial Analysis

Trends in Sales Patterns

Both companies have enjoyed rocketing sales revenue and net income during the past five years. The net revenues of Facebook increased from USD 5,089 million in 2012 to USD 27,638 million in 2016 that constituted the total change of 5.43 times. If compared to the previous year, its revenues enhanced by 54 % in 2016 against the value of USD 17,928 million in 2015. Respectively, the net income of the corporation improved from USD 53 million in 2012 to USD 3,688 million in 2015 and USD 10,188 million in 2016. The total growth over the past five years has been equal to 192.77 times with the net income increased by 177 % in 2016 against the previous year.

The growth of Alphabet Inc. (Google) occurred in the more modest pace than that of Facebook. The net sales of the company enhanced from USD 46,039 million in 2012 to USD 90,272 million in 2016 with the total growth of the past five years equal to 96 %. If compared to the previous year with the revenues amounting to USD 74,989 in 2015 Google enjoyed the sales growth rate of 20 % in 2016. Similarly, the net income of the corporation rose from USD 10,619 million in 2012 to USD 16,348 million in 2015 and USD 19,478 million in 2016. It represented the total change in the company’s net income over the past five years of 83 % and change in 2016 against the year 2015 of 19 %.

Comparative Ratios and Trends

Gross margin

Facebook maintained the growing gross margin in the past that constituted 82.7 % in 2014, 84.0 % in 2015, and 86.3 % in 2016. At the same time, the gross margin of Google was relatively stable and changed slightly from 61.1 % in 2014 to 62.4 % in 2015 and to 61.1 % in 2016. In the past year and in the previous periods, Facebook has had the stronger gross margin compared to Google.

Net profit margin

Both corporations have very high net profit margins. During the past three years, the net profit margin of Facebook changed from 23.6 % in 2014 to 20.6 % in 2015 and to 37.0 % in 2016. Google experienced a relative stability in the level of its net profit margin that constituted 21.4 % in 2014, 21.8 % in 2015, and 21.6 % in 2016. As compared to Facebook, Google has a more stable profitability but has obtained the lower value of its profit margin in the past year.

Return on assets

Facebook had a stable return on assets in the years 2014 and 2015 that amounted to 7.4 % and 7.5 % respectively, but experienced doubling of this profitability ration in the past year to attain the level of 15.7 %. Google had a higher return on assets ratio than Facebook in the previous two years that grew steadily from 10.9 % in 2014 to 11.1 % in 2015. Still, in the year 2016, the level of Google’s return on assets was lower compared to Facebook and equaled to 11.6 %.

Return on equity

Facebook’s return on equity was nearly unchanged in 2014 and 2015 when it amounted to 8.1 % and 8.3 % respectively. Similarly to the return on assets, the corporation managed to more than double its return on equity in 2016 that reached 17.3 %. Google had a more stable pattern in its return on equity behavior that remained at the level of 13.6 % both in 2014 and 2015 and increased slightly to 14.0 % in 2016. Although, in previous years, it outperformed Facebook on this ratio; the situation changed in 2016 with the higher ratio obtained by Facebook (17.3 %) compared to the lower ratio of Google (14.0 %).

Our Benefits

  • English-Speaking Writers
  • Plagiarism-Free Papers
  • Confidentiality Guaranteed
  • VIP Services
  • 300 Words/Page
  • Affordable Prices

Liquidity

The liquidity position of both companies is very strong. The current ratio indicates the proportion of short-term liabilities that can be covered with current assets. Both corporations are able to cover all of their current liabilities using their cash and cash equivalents and marketable securities only. In particular, the current ratio of Facebook constituted 11.25 in 2015 and 11.97 in 2016, while the current ratio of Google equaled to 4.67 in 2015 and 6.29 in 2016. As inventories represent only a minor part of the assets of both organizations, there is no practical use in calculating the quick ratio. Cash ratios of Facebook were equal to 2.55 in 2015 and 3.10 in 2016, while Google had the value of cash ratios of 0.86 in 2015 and 0.77 in 2016. On overall, the liquidity ratios of Facebook are significantly higher than those of Google, while both companies have extremely strong ratios. Still, it should be noted also that the too high cash and current ratios indicate a poor usage of available working capital (especially of cash that produces no revenue to the company) and might signal of the need to revise the investment policy.

Solvency

Solvency ratios indicate the strength of the company in terms of a potential bankruptcy risk. There is virtually no solvency challenge present at any of the analyzed companies due to a very low proportion of debt on their balance sheets. Namely, Facebook had a total debt to equity ratios of 0.12 in 2015 and 0.10 in 2016; and Google had twice as high ratios of 0.23 in 2015 and 0.20 in 2016. Also, in the past year, Facebook had a zero long-term debt and lease obligations; while Google’s long-term debt amounted to USD 3,935 million (to be compared with the amount of total assets equal to USD 167,497 million). Due to the very high market capitalization and strong profits realized in the past five years, both companies do not have the necessity to obtain debt financing and, thus, have strong solvency ratios.

Activity ratios

As inventories’ and trade payables’ balances are insignificant against net sales of the analyzed companies, the efficiency of operations can be only measured with receivables and total assets turnover ratios. In 2015, Facebook had the receivables turnover ratio of 7.00; and Google had the ratio of 6.49. In 2016, Facebook also had the receivables turnover ratio of 6.92, while Google’s ratio slightly increased to 6.39. Thus, both companies have nearly the equal time to wait until their sales are transferred into cash as days’ receivables outstanding constituted 52.7 for Facebook and 57.1 for Google in the past year.

The total assets turnover indicates the efficiency of using all assets of the company to generate revenues. Thus, Facebook was able to create 36 cents of sales revenue on each dollar invested in its total assets in 2015 and 43 cents in 2016. At the same time, assets turnover ratios of Google constituted 0.51 in 2015 and 0.54 in 2016. Thus, on average, Google is utilizing its available assets better to create the revenues compared to Facebook.

Cash Flow Statement Analysis

Change in cash from operating activities

Facebook: the net cash flow from operating activities amounted to USD 7,326 million in 2015, USD 10,320 million in 2015, and USD 16,108 million in 2016. Respectively, the total change over the past three years constituted 120 % and the shift in the past year on a year-to-year basis was equal to 56 %. Mostly, the improvement in the operating cash flow resulted from growth of the company’s net income and higher balances for accrued expenses and other liabilities.

VIP VIP services

$2.00

Get extended REVISION

$3.00

Get SMS NOTIFICATIONS

$3.99

Get order Proofread by editor

$5.99

Get a full PDF plagiarism report

10.95

Get order prepared by Top 10 writers

$11.55

Get VIP Support

VIP Services package 29.98 USD

VIP

Google: the net cash flow of operating activities constituted USD 23,024 million in 2014, USD 26,572 million in 2015, and USD 36,036 million in 2016 resulting in the total change over the past three years of 57 % and an increase in 2016 compared to 2015 of 15 %. The growth occurred mainly due to the enhanced net income value as well as the higher balance of accrued expenses reported.

On overall, both companies had the positive trends in their net cash flow from operating activities in the past three years. While Facebook demonstrated higher growth rates, the nominal change in the cash flows of Google was considerably higher due to the larger size of this corporation.

Comparison of operating cash flow and operating income

Most of the operating cash flow of both corporations is generated as their operating income. Thus, in the year 2016, Facebook had the operating cash flow of USD 16,108 million along with the income from operations of USD 12,427 million; and Google reported the operating cash flow of USD 36,036 million and income from operations in the amount of USD 23,716 million. The higher operating cash flow compared to the operating income of both companies resulted from significant amounts of non-cash operating expenses related to charged depreciation and amortization as well as stock-based compensation costs.

The free cash flow of Facebook during the past three years was positive and increased from USD 5,495 million in 2014 to USD 7,797 million in 2015 and USD 11,617 million in 2016. The total growth of Facebook’s free cash flow over the past three years constituted 111 % and an increase in 2016 was equal to 49 %. The free cash flow of Google amounted to USD 12,010 million in 2014, USD 16,622 million in 2015, and USD 25,824. It resulted in the year-to-year change in 2016 of 55 % and the total shift over three years of 115 %. Thus, the free cash flow of Google increased more compared to Facebook and reached twice as the high nominal amount by the end of 2016.

Current events

Facebook

According to the Market Watch analysts, Facebook has attained the fifth place in the list of largest companies by market capitalization (Market Watch, 2017). Traded on Nasdaq, the corporation had the market value of USD 441.6 billion as of that date that was three positions behind Google (Kilgore, 2017). However, Facebook has to deal with some negative social reactions affecting its policies on data collection and personal data protection affairs. Thus, recently, the claim from the coalition of 25 consumer groups appeared requesting Facebook to release the results of its marketing research as related to the analysis of teenage users and potential use of their vulnerable emotions for advertising purposes (Fottrell, 2017). Also, along with other large social networks, Facebook has faced concerns on its reputation due to a series of suicides occurred with the Blue Whale challenge in Russia, Ukraine, other CIS countries, and the UK (Mullin, 2017). Finally, it is expected that the revenue from advertising will grow at a lower pace in the future; and, consequently, Facebook is seeking for new revenue sources at the moment (Motley Fool Staff, 2017).

Google

On 1 May 2017, Google was named as the second largest listed company by the market capitalization: its total market value amounted to USD 642.7 billion as of that date following USD 770.1 billion of Apple’s market capitalization (Kilgore, 2017). Still, this organization experienced a number of negative events during the past month. Namely, the corporation had to pay USD 334 million to settle tax litigation with Italian tax authorities (Legorano, 2017). The additional tax charge had resulted from settling the tax inquiry related to the fiscal years 2009 through 2015 when Google transferred its Italy-based incomes to Ireland without paying all necessary taxes.

How It Works


Although the corporation’s management assures that Google will continue developing its operations in Italy, most analysts predict that significant funds of the firm will be returned back to the US after Trump’s announced policy for cutting the corporate tax rate up to 15 %. This change can be very significant for this firm as it is among the top five companies with largest cash capital parked overseas. It is estimated that the total value of the company’s cash in foreign operations (outside the US) amount to USD 49 billion (Linanne, 2017). Such a decision to return funds to the US might be additionally motivated by the current discussion in the European Union to adopt stricter rules regulating technological companies (including Google) in terms of transparency and contract unification (Drozdiak, 2017).

Audit

Facebook

On 2 February 2017, Google obtained the latest audit reports on the financial reports and internal control of Facebook, Inc. from the independent registered public accounting firm Ernst & Young LLP that stated the following:

“In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Facebook, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.”; and

“In our opinion, Facebook, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the COSO criteria.” (Facebook, Inc., 2017).

Google

On 2 February 2017, Google obtained the latest audit reports on the financial reports and internal control of Alphabet Inc. from the independent registered public accounting firm Ernst & Young LLP that stated the following:

“In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alphabet Inc. at December 31, 2015 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.”; and

“In our opinion, Alphabet Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.” (Alphabet Inc., 2017).

Our Customer Support Team is at Your Disposal 24/7

Which Company Would You Invest and Why?

An investor seeking for capital gains and expecting to increase the investment value should consider purchasing stocks of Facebook and prefer them to the stocks of Google. It can be concluded from the conducted analysis that Facebook demonstrated the significantly higher growth rates in sales revenue and net income compared to Google during the past five years and on the year-to-year basis in 2016. At the same time, the total amounts of Google’s revenue and net income are considerably higher in the value than those ones of Facebook. Another important notice is that the growth rate of Facebook’s net income was higher than its own change in net revenues. Moreover, Google had an opposite picture with the growth of net income being slower than that of total revenues.

Additionally, although Facebook and Google demonstrate nearly equally the strong financial performance in terms of liquidity, solvency, and profitability, the former experienced the considerable higher growth in most items of financial statements that indicated its stronger potential for the further increase in the shares value. Furthermore, Google shares are quoted per share price that is more than 6 time higher than that of Facebook. With the market capitalization being the second largest one in the world among the listed companies GOOGL share appear to be significantly overvalued by the market and might see a drop in prices in the future. Still, one should be aware than if the investment is planned for a rather long term (longer than one or two years) than Google might appear to be a stronger alternative for it due to better efficiency of the assets’ usage, higher diversification of revenues, and stronger growth in the free cash flow amount.