Analyst Defends Google (GOOG), Says Search Ads Will Hold Up Well
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Price: $159.51 -0.26%
Rating Summary:
41 Buy, 6 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 12 | Down: 9 | New: 14
Rating Summary:
41 Buy, 6 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 12 | Down: 9 | New: 14
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With shares of Google (Nasdaq: GOOG) in the tank, bullish Piper Jaffray analyst Gene Munster is pleading his case again to buy the stock.
The main issue driving the downside in Google's stock has been the view that the slowdown in advertising will have a large negative impact on the company, driving down paid click rates and company revenues. Google was a great stock because of its growth. Not only is growth slowing, but people are now worried about the company just sustaining its past sales and profit.
Gene argues that search is one of the most defensible forms of online advertising in an economic downturn. He notes that in the years following the start of a recession since 1970, direct mail, which is a historical benchmark to search, grew an average of 5% versus total advertising at 1.5%. He also said ad spend growth rates during recessions declined 85% on average, while direct mail growth rates declined only an average of 31% during the same periods. He concludes, "Google continues to be far and away the best company in the Internet space and operates in an advertising vertical (direct response) that historically fares well in an economic downturn. We believe this combination makes Google the top Internet stock to own in the current economic tumult."
The firm is reiterating their Buy rating and lofty $600 price target on Google.
One of the key things Gene didn't talk about is that a lot of Google's success has come from the fact that the large number of bidders for specific keywords drove CPC revenue. If the number of bidders for keywords drops, then the fall in CPC prices could be precipitous. One positive thing we did notice is that Google is now starting to monetize other areas of its website. For the first time, Google placed ads in their Google Finance section.
The main issue driving the downside in Google's stock has been the view that the slowdown in advertising will have a large negative impact on the company, driving down paid click rates and company revenues. Google was a great stock because of its growth. Not only is growth slowing, but people are now worried about the company just sustaining its past sales and profit.
Gene argues that search is one of the most defensible forms of online advertising in an economic downturn. He notes that in the years following the start of a recession since 1970, direct mail, which is a historical benchmark to search, grew an average of 5% versus total advertising at 1.5%. He also said ad spend growth rates during recessions declined 85% on average, while direct mail growth rates declined only an average of 31% during the same periods. He concludes, "Google continues to be far and away the best company in the Internet space and operates in an advertising vertical (direct response) that historically fares well in an economic downturn. We believe this combination makes Google the top Internet stock to own in the current economic tumult."
The firm is reiterating their Buy rating and lofty $600 price target on Google.
One of the key things Gene didn't talk about is that a lot of Google's success has come from the fact that the large number of bidders for specific keywords drove CPC revenue. If the number of bidders for keywords drops, then the fall in CPC prices could be precipitous. One positive thing we did notice is that Google is now starting to monetize other areas of its website. For the first time, Google placed ads in their Google Finance section.
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