Google (GOOG) shares are already up 60% from their January lows, but Citi’s Mark Mahaney thinks shares can go up another 25% in the next year.
He reiterated his “buy” rating on the stock in a note today, with five main drivers. He says:
- Search spending looking good: At least in-line with Q2, and retail “showing lift.” (Still too early to call the quarter, though — September is key.)
- Mobile growth is real: Advertisers seeing 10x increase in clickthrough from mobile devices. Smartphone sales strong, which drives more mobile search.
- Online retail Q2 results positive for Internet advertising, both search and display. Second half could see 20% y/y marketing spend growth vs. 3% y/y growth in the first half.
- Google’s “caffeine” improvements to search could drive “select, but material” increase in index size and speed.
- “JK Wedding” YouTube video a case study for the site’s potential revenue and profit growth, via advertising and music referral sales. “Seems like GOOG’s biggest loss-leader is turning profitable…” (Mahaney recently published another YouTube slobber-fest.)
Seems plausible, though we’d caution against getting too excited about Google’s mobile business yet.
One risk for Google is that an uptick in mobile ads — and a shift in consumer behaviour to surfing more on the phone and less on the computer — could actually be bad for Google in the near term. Why? Its desktop business is likely far more lucrative on a per-session basis today than its mobile business will be for a long time. Especially as iPhone (and smartphone) users gravitate to apps, not the Web, where Google faces much more competition than it faces in search.
One mobile ad exec likes to note (with a chuckle) that Google is probably better off trying to make a 1% improvement in its regular search business than investing much effort in mobile (today).
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