THE GOOGLE INVESTOR: Google Better Find That Second Engine As Search Share Gains Flatline

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GOOG Gaining Back Yesterday’s Losses
Shares of GOOG are up today, gaining back $13 from yesterday’s sell off. Investors are still concerned with increasing costs, lack of focus (wind farms) as well as lack of secondary growth engines. Catalysts include resolution of the AdMob acquisition investigation, Android and mobile adoption as well as traction of newer initiatives (which have been disappointing). The stock trades at approximately 18x 2010 EPS and 15x Enterprise Value / EBIT.

Words Of Wisdom From Wall Street; Google Not Doing That Bad
Analysts highlight the positives:

  • Piper Jaffray analyst Gene Munster believes that Google’s second quarter U.S. paid clicks are tracking up 7.5% sequentially based on April data. He believes April will be the strongest month in the quarter, and views the strength as a potential positive for the stock. Munster currently is modelling U.S. paid clicks to decrease 1% quarter-over-quarter so there is upside potential. He maintains his Overweight rating and $700 price target ($200 upside).
  • Justin Post, analyst at Bank of America / Merrill Lynch issued his first quarter report card on the Internet sector where he ranks his coverage universe. Google fell from the number 5 spot to the number 7 spot overall. While Google ranked second in financial performance, growth is slower than many Internet peers. He believes Google’s multiple will expand as revenue growth reaccelerates on easier year-over-year comparisons. That said, the stock will likely continue to be volatile with increased economic uncertainty. He maintains his price target of $685.

Google’s Biggest Search Growth Engine Has Flatlined (Business Insider)
From a financial perspective, Google is still a one-trick search pony. Profit (not revenue) generated from non-search products is basically a rounding error. Growth in the company’s biggest business has been driven by 1) growth in searches; 2) growth in revenue per search; and 3) share gains. Henry Blodget at Business Insider highlights that in the biggest and most important market on earth, Google’s share gains have now flatlined. Sure, Google can continue to grow via increases in searches and revenue per search. But it will be incremental, not explosive, leaving investors who are used to gangbuster year-over-year growth disappointed.

Google And Verizon Launching iPad Killer (The Wall Street Journal)
Google and Verizon Wireless are working on an Android-based tablet computer to challenge Apple’s iPad according to The Wall Street Journal. At first glance, it would seem that Verizon is aligning with Google in a fight against their two mobile archrivals, Apple and AT&T. Dan Frommer at Business Insider believes it’s just a ploy from Verizon to get better iPhone terms. While Radu Haraga at Seeking Alpha believes that Google is using Procter & Gamble’s old strategy; wait for commoditization and then launch a dramatically improved version. “Good news for Google and bad news for Apple.”

Google Should Give Up On Social And Buy Twitter Already (Business Insider)
Nicolas Carlson at Business Insider believes that Google is completely lost when it comes to it’s social initiative. His source says, “They don’t know what they want. I think the main role is they want someone to tell them what they should do.” Instead, the company should buy Twitter for whatever the price-tag is these days ($5 billion), acquire a massive sales force selling to local businesses, copy the photo-sharing application of Facebook and sit back and profit.

The Future Of YouTube Looks Like TV; Ad Supported Revenue Share (Boring) (CNN Money)
YouTube turns five years old this year. Today, 24 hours of video is uploaded every minute. Fortune’s Tech Talk sits down with YouTube executive, Hunter Walk, to talk about the evolution. When the site first launched, users would mostly watch short-form comedy or music. Now users are engaged in news, sports and most recently live streaming. Additionally, users are no longer watching content just on computers, smartphone usage is booming. On the financial side, business has (finally) caught up to the consumer usage. YouTube looks just like TV now running profitable commercials against viewers. For example, Vevo is a new music content site powered by YouTube which is ad supported (revenue share).

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