Is Google's Brand Value Greater Than Apple's?

It appears the stock market reacted favorably to the minutes of last month's Federal Reserve monetary policy meeting, which showed that central bankers are in no hurry to raise interest rates rates. The benchmark S&P 500 gained 0.8% on Wednesday, with the narrower Dow Jones Industrial Average (^DJI -0.38%) up 1%. The technology-heavy Nasdaq Composite Index (^IXIC 0.15%) was up 0.8%.

In company-specific news, Google (GOOG 0.47%) (GOOGL 0.41%) has overtaken Apple (AAPL -1.04%) to become the most valuable global brand, according to a market research firm. That isn't good news for Apple, as it coincides with period in which competition with Google has become increasingly intense.

Is Google's brand more valuable than Apple's? It's an impossible question to answer with any great confidence. Even according to the folks at Millward Brown, who conducted the study, there's less than a 10% difference between their estimates of brand value for the two companies:

Top 10 Most Valuable Global Brands

Source: Millward Brown.

What is less controversial, however, is the trend in both companies' brand value over the past 12 months. Millward Brown estimates that Google's has risen 40%, while Apple's has fallen 20%. Again, I won't try to criticize or defend the figures, since I haven't reviewed their methodology, but it's certainly reasonable to assert that Google has increased its brand value during that period, while Apple's has fallen. Here are two factors to explain that trend:

• Ubiquity: Google was already the dominant brand in search (roughly two-thirds market share in the U.S. in April, according to comScore), and, with regard to smartphone operating systems, its Android platform has taken market share from Apple over the past 12 months. ABI Research now estimates Android has an incredible 80% global market share of smartphone operating systems.
• Innovation: Google still relies on search for the near totality of its revenues and profits, but those profits are funding research -- and acquisitions -- in all sorts of interesting areas, some of which are seemingly unrelated to search (driverless cars, anyone?). Within the past 12 months, Google has snapped up advanced robotics firm Boston Dynamics and intelligent home appliance maker Nest (which was founded by Apple alumni). This month, Apple did its largest ever acquisition, paying $3.2 billion for a manufacturer of high-end ... headphones. Sorry, Apple, but something you put in your ear to listen to music doesn't spark the imagination the way Boston Dynamics' WildCat does (link opens a YouTube video).

Apple has not launched a new product category since the introduction of the iPad in the second quarter of 2010 (although it has promised a new category for this year). At this stage, it's fair to say that Google has overtaken Apple in terms of reputation for being innovative and visionary.

Brand value and stock returns
Why does any of this matter to investors? Millward Brown suggests there is a link between high brand value and stock market outperformance, asserting that its BrandZ portfolio of companies with the most valuable brands has beaten the S&P 500 over the past nine years, with a return of 81% versus 45%. That doesn't sound far-fetched; after fall, we know for a fact that a great brand is a durable competitive advantage and, consequently, a source of above-normal returns on capital.

Still, while Google's brand value may have overtaken Apple's over the past 12 months, its stock has actually underperformed Apple's over that period --although one could argue that this is because Apple's stock was materially undervalued a year ago. If we use the 12-month period to the end of March 2014, Google has outperformed Apple.

Looking forward, the market is awarding a higher multiple to Google shares, at 19.4 times the next 12 months' earnings-per-share estimate versus 13.2 times for Apple's, per S&P Capital IQ. Given differing expectations for earnings growth -- expect higher growth from Google -- both shares look well valued at those multiples. In fact, I expect both to beat the index over the next three to five years, but with my value orientation, I'd tend to favor Apple shares.