CITI: Google's Stock Is Ready To Go On A Monster Run

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Photo: Scott Beale / Laughing Squid

Finally, someone is sticking up for Google. Unfortunately, it’s an investment bank.Google has been taking a beating for the tech press, as well as with the cool kids in Silicon Valley for losing its focus, stuffing Google+ down users’ throats, and failing to deliver products that blow our minds.

Couple that with the big earnings miss it posted in January and the result is an underperforming stock. It’s flat year to date, while Microsoft is up 25%, and Apple is up 51%.

But, Google has a friend in Mark Mahaney at Citi. He says the haters are wrong, and the stock, trading at $650 is ready to rip. He’s upping his price target to $750. (He had it at $680 previously.)

The reasons for his optimism: revenue is going to keep rising, social channels like Facebook and Twitter aren’t affecting search spend, search is still big and growing in mobile.

We assume Google would prefer that people in the Valley were sticking up for it, talking about its brilliant technology and products. But, right now it has to take what it can get.

Here are the key takeaways from Mahaney’s note:

  • Update #1: Q1 SEM Checks Generally In-Lineish — Our checks (incl. our 3/26 SEM Call) suggest Q1 Search spend growth deceleration vs. Q4 in-line with our estimates. Broadly, our SEM checks anticipate Search spend growing 10%-24% Y/Y in Q1, with continued weakness in CPCs due to Google Ads Quality changes and greater Mobile/Tablet Search activity. Finally, Google’s share of ad budgets continues to remain strong & steady, with new Social Media budget spend coming from premium Display and Offline channels, and not from Search budgets.
  • Update #2: Takeaways From Search Engine Strategies Conf — From our perspective, one of the most significant product launches from the conference was Google’s new Social Analytics tool. And one of the most significant themes of the conference was Search Marketers’ increasing focus on Mobile.
  • Update #3: Detailed GOOG Segment Analysis Supports 20% Revenue Growth Outlook — Extrapolating from current trends, we see Mobile and Display rising from approx. 18% of GOOG’s Revenue in 2011 to 21%+ in 2012. Given 40%+ growth rates for Mobile & Display, this all but guarantees a strong double-digit revenue growth outlook for Google for the foreseeable future, with 20%+ growth in 2012.
  • Raising PT to $750 – We believe that our outlook for a 3-year high-teens+ EPS CAGR supports a market premium multiple. As does the company’s successful positioning against three of the biggest current trends on the Internet (Mobile, The Migration Of TV Ad Budgets Online, and Cloud Computing). Thus, we are raising our target multiple from 13.5X to 15X our 2013 EPS of $50 to reach our new $750 PT.

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