Facebook Users Could Eclipse Google in 2011

If social networking site Facebook ever finds a way to make money – and that’s a big “if,” I’d imagine – it could pose a threat to Google (GOOG), according to a 15-page note out today from RBC Capital Markets analyst Ross Sandler, chockablock with charts and graphs and tables.

Sandler has an “Outperform” rating on Google and a price target of $475, which would be 43% above the current price.

Sandler writes that he’s generally felt that Facebook is complementary to Google, but “that could change if Facebook’s rapid growth trajectory continues on its current path.” At the very least, writes Sandler, “we think Facebook as the “starting point” for more and more users on the Internet could create some multiple compression for Google over time, if the momentum continues.”

Currently, the two sites are driving traffic to one another, and here Sandler offers intriguing stats pulled from Comscore (SCOR) Web data.

Google is getting 19% of its traffic coming from Facebook, up from 9% 12 months ago. And more people surf from Facebook to Google than from Facebook to Yahoo! (YHOO) or Microsoft’s (MSFT) search engine services, notes Sandler. And Google unique users coming from Facebook are growing at a rate of 188% year over year. In turn, Google is responsible for creating 64% of Facebook’s unique users, something that’s also on the rise.

However, this harmonious relationship could change with the prospect that Facebook may displace Google in number of unique users by late 2011 or early 2012, Sandler opines, given a compound annual growth rate of 85% for Facebook and just 20% for Google.

Moreover, the number of Facebook’s unique users who start their browsing at Facebook.com is on the rise, at 45%, up from 39% a year ago. And according to a note from AdAge that Sandler refers to, Facebook is now directing more traffic to some key Websites than does Google, implying that over time, Facebook could eclipse Google’s function as a directory for the Web for some significant portion of computer users.

Despite all that, Sandler, who claims to be a fan of Facebook, concludes that he can’t declare victory for Facebook just yet. There are a number of Facebook clones, he notes, which could still limit Facebook’s dominance. “We agree that Facebook should benefit from ‘network externalities’ as its user base grows globally, which should allow the business model to become more defensible. But we just are not there yet. The space is still too fragmented, the ‘cool kids’ are fickle and quick to move to the next social net, unlike the stickiness in the search marketplace.”

Google shares Wednesday are down $2.45, or .7%, $332.81.

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Comments

[waf76:]

Google gets 19% of its traffic from Facebook? That sounds hard to believe. So you're saying that 1 out of every five people that use google are using it from facebook. Yeah right...

Mar 18 01:43 PM