It’s been two years since Google (Nasdaq: GOOG) forked over $12.5 billion to acquire Motorola’s cellphone business. As we reported back then, the move appeared to be motivated mainly by Motorola’s hefty patent portfolio. And with a price tag of more than double the estimated value of the patents, most pundits argued that Google vastly overpaid.
Although the move certainly hasn’t really hurt Google’s stock over the past two years (it’s up more than 66%), Motorola has been weighing on Google’s bottom line.
In the most recent quarter, Motorola reported a loss of $218 million – more than four times the $49 million it lost in the second quarter of 2012.
This could all be changing, though.
This month, Google is releasing its first Motorola-built phone, The Moto X. And if all goes to plan, it could make Google an absolute juggernaut of a company.
One chart pretty much says it all…
As you can see above, Samsung’s mobile business is more profitable than Google’s entire business.
That’s pretty remarkable considering Google is a $300 billion company that brings in over $10 billion a year in net income.
But selling devices has turned out to be an incredible business for Samsung and even Apple (Nasdaq: AAPL).
Below, you’ll see just how much revenue each of the companies is bringing in quarterly. And more importantly, you’ll see just how much room Motorola has to make up in handset market share.
But Can the Moto X Do It?
So we know there’s an opportunity here for Google to turn this quarterly loss from Motorola into a big positive. But the $64 million question remains…
Can the Moto X become a viable competitor against Apple’s iPhones and Samsung’s popular Galaxy models?
Of course the market will ultimately decide. But let’s take a look at some of the features that may make the Moto X stand out vs. the competition…
- The phone features always-on voice recognition intended as an upgrade to Apple’s Siri.
- It is said to have more customization options than any other handset.
- Its 4.7 inch, 720p display isn’t as flashy as some, but it should make up in performance and battery life what it lacks in screen resolution.
- Speaking of battery life, Motorola claims the phone should hold a charge up to 24 hours while handling various tasks.
- It also comes with 50GB of free space on Google Drive for two years.
- It’s made in the U.S.A. (which is going to be important to some consumers)
Otherwise the specs are pretty much in line with offerings from companies like HTC and LG that haven’t been spectacular. As those companies have found, it’s tough to compete in the high-end smartphone market against Samsung and Apple.
The Elephant in the Room
But there’s one thing those companies don’t have that Google does… marketing power.
Google is probably the largest advertising company in the universe. And it’s been reported that it’ll be allowing Motorola Mobility to spend upwards of $500 million on Moto X marketing.
Tying it all together is former Samsung marketer Brian Wallace, whom Google poached late last year to head up marketing for Motorola Mobility.
If Google market the Moto X successfully – which it is certainly well-positioned to do – Motorola may have a shot to steal some market share away from Samsung and Apple.
As BGR reported last month:
“Dozens of key factors contribute to the success or failure of a smartphone but the two most popular handsets in the world, Apple’s iPhone 5 and Samsung’s Galaxy S4, each have billion-dollar marketing and advertising budgets backing them. This is no coincidence, of course; it takes money – a lot of money – to make money.”
The Bottom Line
Even if Motorola can somehow turn a profit, it’d be a big win for Google – and likely enough to easily propel the stock past $1,000 per share. But if Moto X can successfully carve out market share against Apple and Samsung… then we could be talking serious gains.
Our investment philosophy here at Investment U is that share prices follow earnings. And as you can see from the charts above, selling high-end smartphones can be extremely lucrative… if you can steal market share away from the big dogs.
It won’t be easy – but with Google behind it, it could happen.
Editor’s Note: Over the next few years, a giant leap in technology is about to undoubtedly render all current smartphones, such as the Moto X and iPhone 5, obsolete. The Wall Street Journal calls this breakthrough, “An impending turning point in high tech as important as silicon and integrated circuitry were half a century ago.”
It all revolves around a newly developed “super-substance” that conducts electricity 100 times faster than silicon, and is 200 times stronger than steel. And as soon as news of this life-changing new material hits the markets, we estimate one company which controls strategic patents could soar by as much as 2,388%.
To read the full story, click here.
View original at: Investment U
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