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Can Moto X Push Google Over $1,000?

Anything that can stop Motorola's bleeding would be cheered


While Apple (AAPL) was the company that everyone expected to hit the $1,000 barrier following its rise to $700, the iPhone-maker’s stock never quite made it there — it moved the necessary $300, just in the wrong direction.

No, the tech company now poised to hit the $1k mark is actually Google (GOOG), the search engine company-turned-Apple’s mobile nemesis. Whereas Apple dropped off starting last September, Google briefly slipped, but in all has returned about 30% since that time and finds itself currently around $920.

With Motorola Mobility about to release the Moto X — its first flagship smartphone under Google ownership and a device the Wall Street Journal says is expected to have a marketing push that may hit $500 million — does Google have the steam to make it?

Possibly. But first, we should look out for potential icebergs.

Perhaps the biggest issue Google faces right now is its image. The “Do no evil” mantra kind of fell by the wayside a while ago, but Google’s still relatively clean image took a serious knock after the NSA scandal and revelations of Google’s own data mining efforts. According to a marketing survey being widely reported by media outlets, Google has dropped out of a list of the 10 best-perceived brands in the U.S., joining Apple as an ex-member. A Google that loses its cool is at risk, especially in the hardware arena.

And hardware is exactly where Google is likely at its highest risk. I wrote previously about how Google’s increased dalliance in hardware has the potential to lead to stock volatility — hardware can be hit-or-miss, expensive to market and subject to cyclical demand. There are many new products on the pipeline — both confirmed and rumored — including Project Glass, a rumored smartwatch, new Nexus tablets, the possibility of an Android-powered game console and now the Moto X smartphone.

Even though search remains Google’s bread and butter, a miss on these devices — be it because of perceived technological shortcoming or if image-conscious consumers simply don’t want a Google logo on their gadgets — could lead to an emotional vote of no confidence in the stock.

Speaking of the Moto X, the upcoming smartphone could indeed be the variable that takes Google the rest of the way.

Up to now, Motorola has been a drag on Google’s bottom line. The division reported an operating loss of $527 million in Q3 2012, $353 million in Q4 and another $271 million in Q1 2013. During this time, which has been a transition phase — the Motorola smartphones released since the Google acquisition were already in the pipeline — Motorola hasn’t had any real hits. In Q4 2011, Motorola sold 10.1 million smartphones worldwide; by Q4 2012, that number slid to 7.8 million and it was just 2.3 million in the latest quarter. Instead, Motorola has shaved its losses via job cuts and selling off some technology.

That’s hardware volatility in action, as consumers flocked to iPhones and Samsung (SSNLF) Galaxies instead of Motorola Droids.

There is a window of opportunity at the moment, though.

Apple has lost some of its shine, and not just from an investment perspective. There’s a feeling that the iPhone is falling behind the competition, with a display that’s too small and an operating system that has playing catchup to Google’s Android. There’s a good chance the next iPhone is going to be a spec-bumped iPhone 5, which could lead to further anti-Apple sentiment.

At the same time, sales of Samsung’s Galaxy S4 have slowed considerably amid complaints that it is too similar to its predecessor and too loaded with gimmicky software.

The Moto X — the first smartphone designed by a Google-owned Motorola — has a lot going for it and has the opportunity to take advantage of the frontrunners’ doldrums. It could become the new Android showcase phone, bare of all the extras that manufacturers layer on top of Google’s mobile OS. It’s assembled in the U.S. — a big deal these days, and a shot at Apple’s China-assembled iPhones. Motorola is offering customization (reportedly case colors, engraving and possibly even some hardware elements), and breakthrough battery life has been rumored.

If the specs are solid and Google follows through with the marketing investment, the Moto X has the potential to stop Motorola’s sliding market share and even take back some of the ground ceded to the iPhone and competing Android smartphone manufacturers.

Even if it were to somehow bring the Motorola division to breakeven, that’d be no small contribution. For instance, GOOG’s operating income would’ve been roughly 9% higher in Q1 2013 had Motorola merely logged a “zero.”

At the same time, with Google’s core ventures continuing to perform well (even if cost-per-click continues to slide), its Chromebook laptops bucking the slide in PC sales, the interest generated by its Project Glass augmented reality specs and Google Fiber expanding its rollout, the horizon is looking pretty good for Google anyway.

Even if the Moto X isn’t the breakthrough smartphone Google is hoping for, the relentless growth of Android market share will continue contributing mobile search dollars and revenue through Google Play. It might just make the run take a little longer.

Momentum, sentiment and the winds of business all seem to be pointing in the right direction for Google. Nothing’s a guarantee, but GOOG $1,000 looks doable.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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