Canaccord: Google Is A Buy Because Of Non-Search Growth, Valuation

In a report published Thursday, Canaccord analyst Michael Graham maintained his Buy rating and $650 price target on Google Inc GOOG. The stock has decline about 4.5 percent over the past 12 months, as compared to the 11 percent rise in the S&P.

The underperformance of Google's stock has been highlighted due to the strong performance of its Internet peers. "We attribute investor apathy towards Google stock largely to the perception that: 1. Search advertising growth has peaked (we agree); 2. Social advertising is going to continue to take share away from Google (again, we agree); 3. Google has limited growth opportunities to offset search deceleration (we do not agree); and, 4. The stock's multiple is where it should be given growth deceleration (again, we do not agree)," Graham said.

Given the YouTube, Google Play and Ad Tech have been seeing rapid growth, the analyst expects these three categories to account for about 34 percent of the company's gross revenue by 2018. "In particular, we forecast Google Play will grow by over 50% annually over the next couple of years and YouTube will grow faster than 25%," the report stated.

The analyst also believes that these three categories would drive revenue growth for Google in the teens at least through 2018, although search is expected to grow by about 6 percent in the same year.