The analysts lowered the firm's rating from buy to neutral, slashing its price target by $20 to $580. That's not necessarily a bearish goal, but since it represents just 8% in appreciation from the stock's close ahead of Friday's downgrade it's a risk that some investors may not want to take.
The downgrade finds analysts lowering the firm's projections, largely on the challenge posed by Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL). These are familiar foes to Google. Its Android platform dukes it out with Apple's iOS for mobile supremacy, and Facebook's dominant market position in social networking resulted in the aggressive rollout of Google+. However, with the lion's share of Google's revenue coming from online advertising it isn't a surprise that the ultimate threat that Facebook and Apple pose is the potential for mowing down its market share.
Bank of America Merrill Lynch sees that happening, predicting Google's share of the stateside online advertising market will fall from 41% last year to 39% come 2015. This doesn't mean Google's growth is peaking. We all know that the pie itself is growing. However, recent moves at Facebook and Apple could make things interesting.
Facebook and Apple are on the move
Apple's new iPhone 6 and the even larger iPhone 6 Plus will be hot sellers this holiday shopping season, but more importantly they expand Apple's base of folks going online with large-sized screens. At a time when the iPad is struggling it keeps Apple's mobile operating system relevant with the larger displays that advertisers prefer to get their messages across.
Facebook is a people eater. Daily and monthly active users stand at 864 million and 1.35 billion, respectively, growing in the mid to high teens over the past year. It's not just about the gobs of ads that they're consuming. With people leaning on Facebook for everything from personal referrals to weekend outing ideas it's a legitimate threat to Google's popular search engine.
The latest Google feather ruffler at Facebook is video advertising. Earlier this year, Facebook began playing Facebook-hosted videos automatically as users scrolled down the page. The move was limited to videos posted or shared by friends, and there is no sound unless the viewer toggles it on. However, this is clearly the first step in a more ambitious plan to make more money serving up online videos.
Online video is a big deal for Google, and it has been since it acquired YouTube in 2006. Analysts have been pumped about the leading video-sharing site's marketing potential. Stifel Nicolaus analyst Scott Devitt issued a bullish note three months ago, forecasting that YouTube's revenue will surge from roughly $4 billion last year to $31 billion by 2024. With traditional TV consumption falling sharply, particularly with younger viewers, online video marketing will be a booming industry for years to come. This has been Google's turf for ages, but now Facebook may be crashing the party.
This doesn't mean that Google is doomed. Wall Street's consensus still sees Google growing its revenue by 19% and earnings per share by 15% come 2015. That's pretty healthy, suggesting that Google is more than reasonably priced at 18 times forward earnings. Apple fetches a lower multiple, but it's growing slower on average. Facebook is growing faster, but it also is trading at a much higher valuation.
All three can and probably will win. There's no need to pick favorites.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.