THE GOOGLE INVESTOR: Analysts Pound The Table While The Global Economy Falls Apart

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GOOG Free Falling With Market
Stocks are plummeting today on continued global economic fears with the Dow below 10,000. GOOG is off $5 to $472. Specifically weighing on Google are investor concerns with increasing costs, lack of focus (wind farms) as well as lack of secondary growth engines. Potential catalysts include news flow from the Bank of America Merrill Lynch Technology Conference on June 2, Android and mobile adoption as well as traction of newer initiatives. The stock trades at approximately 17x 2010 EPS and 14x Enterprise Value / EBIT.

Is Anyone Listening? Google Is A Flaming Buy; Even Cramer Thinks So (Business Insider)
Citigroup’s Mark Mahaney has always been a Google fan. Since the stock has cratered following Google’s withdrawal from China, failure to find a second big growth engine and marginal first quarter growth, he’s doubling down by adding GOOG to the Conviction Buy List. He believes the correction in GOOG shares year-to-date and current valuation has created a compelling risk-reward opportunity. Even Jim Cramer is pounding the table on GOOG valuation last night on Stop Trading! It’s now a low-multiple stock, “so go buy it.”

Google Gives Up AdSense Economics; Search Partners Get 51¢ On The Dollar (Google / AdSense)
Google is finally revealing its revenue split on AdSense: 68% to publishers for content ads, 51% for search ads. Jeff Jarvis at Buzz Machine says “It’s not uncommon for ad networks to take 50% or more.” Bank of America Merrill Lynch analyst Justin Post believes as the big traffic generators (AOL and MySpace) contracts are re-negotiated, Google’s average traffic acquisition cost (TAC) rate will continue to trend down. Each 100 basis points of TAC savings (all else being equal) could drive $0.15 in 2011 EPS upside. On the negative side, some search partners may not be happy knowing they are only getting 51% per dollar of revenue and will be able to negotiate better competitive rates with publishers and Microsoft.

Google Taking Over Microsoft’s Reign As Regulator Whipping Boy (The New York Times)
The Justice Department and Federal Trade Commission have been watching Google like a hawk for the last couple of years. The FTC laughed at Google’s plan to partner with Yahoo in 2008 and the DOJ is currently trying to put the kibosh on Google Book Search. Thank goodness for Apple, as the FTC was just shamed into approving Google’s bid for AdMob. Clint Boulton at GoogleWatch says it’s clear that Google is the new “whipping boy,” taking over Microsoft’s reign as the “man” in the tech world. But why should Google “be punished for creating a search engine 75 per cent of the free world uses?” Boulton believes the company won’t; it’s too big and too successful.

Google’s Core Business At Risk From Amazon On The E-Commerce Front (Business Insider)
There’s no question that Google is fighting battles on almost every front. But while they are doing this, Chris Dixon, co-founder of Hunch, believes they are leaving their core business vulnerable, particularly to Amazon. The key risk for Google is that they are heavily dependent on online purchasing being a two-stage process: the user does a search on Google and then clicks on an ad to buy something on another site. As long as the e-commerce world is sufficiently fragmented, users will prefer an intermediary like Google. But as Amazon increasingly dominates and consolidates the e-commerce market, this fragmentation could go away along with users’ need for an intermediary. We should point out that Google has recently moved agressively to improve its product offerings and has added cost-per-action (CPA) inventory into the mix.  Retailers have been happy with the results thus far and have spent more on Google ads in order to drive sales to their sites.  So, it could equally be argued that Google is going after Amazon’s core business.

Advertisers Calling Google The TV Ad saviour (BusinessWeek)
Advertisers are getting excited for Google TV. Many believe the new medium will allow faster reach of TV viewers which will be cheaper and more effective than traditional TV spots. One advertising executive is calling it “the future of advertising.” Granted, his company already buys TV ads from a prior service called Google TV Ads. The new Google software, or Smart TV, will put Web content on televisions and will work with other technology partners (Intel, Sony, Logitech) to allow Google TV to run on generic sets. Viewers will then have the ability to search for Web programming through an onscreen search box.

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