Photo: Morgan Stanley
Scott Devitt and his team at Morgan Stanley just put out a bullish note on Google, raising its price target to $730.Devitt says Google’s growth in mobile and the success of Google Instant aren’t being fully appreciated. He sees them driving growth. Here’s the bullets of the note:
I) Google Instant, which makes searching more efficient by displaying search results as users type, could drive increased user loyalty and market share. As a secondary benefit, it could also drive revenue upside. Investors view ‘Instant’ as a key breakthrough, but are not modelling upside. Our analysis / recent data suggest ‘Instant’ may drive financial upside in CQ4E / C2011E.
II) Mobile: Given the rapid growth in mobile usage / penetration, we believe ‘Instant’ on mobile (which launched on Nov. 5th in the US) may eventually prove more important than desktop. Faster smartphone adoption could drive revenue growth “Faster for Longer.”
III) eCommerce: Initial data for the holiday eCommerce season are strong, which should support robust paid search spend on Google during the current quarter.
Raising estimates: We are raising our CQ4E / C2011E net revenue est.’s to $6.2B / $26.4B and operating EPS estimates to $8.23 / $34.80 (3-4% ahead of consensus), despite increasing operating expense assumptions for 10% salary raises which will be effective January 2011.
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