By Sheena Lee
Analysts have been increasing their price targets on Google (NASDAQ:GOOG) in the past month as the silicon valley giant continues to gain market share in the search space. Amid market chatter that Google is purchasing online discount provider Groupon for $5-$6 billion dollars, analysts give mixed reviews on the possible acquisition. But strong quarterly earnings, Google’s entry into the e-books market, its growing penetration of the government market at Microsoft’s (NASDAQ:MSFT) expense and expectations of a new social product combine for a positive outlook for the stock price.
The median price based on the most recent targets tracked by Alacra Pulse is $670, up $50 from the previous Prognosis and almost 19% higher than Wednesday’s closing price of $564.35. The mean target is $670.85. Of 26 analysts who have changed or reiterated their price targets, 22 have a positive rating, 3 are neutral and only one is negative.
Current 12-month price targets of selected sell-side and independent analysts. Click image to enlarge.
Jason Helfstein, analyst at Oppenheimer said with $31 billion in cash, acquisitions are important for Google’s long-term growth as companies like Facebook and Twitter have been taking a lead in social media and messaging. ”While the implied valuation is high, causing investor angst, we believe Google is uniquely positioned to leverage the 3,000-person local (Groupon) sales force to up-sell Google ad products.” Helfstein raised the firm’s price target to $640 from $600 last month.
Barclays Capital analyst Douglas Anmuth, who hiked is price target on Google to $675 from $550 last month and has a Buy rating on the stock, said he questions whether Groupon has sustainable long term competitive barriers. ”But, as we’ve thought through these concerns and where technology and devices are taking both Google and Groupon going forward, we think the potential deal can be complementary for Google and be a key factor in its mobile, local, and social ambitions,” said Anmuth.
Wedbush Securities analyst Lou Kerner, is on the lower end of price target projections with $575 and has a Neutral rating on Google, but he said that Groupon’s daily-deals service dovetails with Google’s search advertising business, with both focused on helping merchants acquire customers. ”Google is building a mosaic of marketing solutions for businesses,” said Kerner. “So having this kind of flash-sale side of the business, which will all be automated, just makes a ton of sense.”
However, not all analysts agree that Groupon could be beneficial to Google. Forrester analyst Sucharita Mulpuru wrote: “A multibillion-dollar valuation for a company that is in a business with virtually no barriers to entry and is younger than my toddler is absurd.”
Macquarie Research analyst Ben Schachter, who has a higher end $725 price target and Buy rating on Google, said in a research note that the purchase (of Groupon) “is about much more than Google generating revenue from emailed coupons — it’s about Google’s ability to potentially access and utilize the social graph for eCommerce.” ThinkEquity’s Aaron Kessler has the highest target at $760.
Piper Jaffray’s Gene Munster, who this week reiterated an Overweight rating and $652 price target, expects Google to post in-line fourth quarter results. In a note to clients, he said the street is looking for 22% y/y and 10% q/q revenue growth. “Three separate search keyword buyers are suggesting retail advertisers are set to spend 15-37% more on paid search than last year. Additionally, we continue to believe holiday eCommerce sales will be up 20% y/y, which supports the increased spend…”
Still, there’s at least one cloud on Google’s horizon in the form of an antitrust inestgation by the European Commission.
Whit Andrews, an analyst at Gartner, said: “Google is still extremely vulnerable. It is not like Facebook, where, if users leave, they have to bring all their friends with them. With Google you can just go somewhere else. This is a crucial moment for the company.”
(Sources: Alacra Pulse, AllThingsD, TechCrunch, Wall Street Journal, Around the Net, Benzinga, Reuters, GigaOm, The Independent.)