A $1,000 Price Target on Google is Not That Far-Fetched
Google (NASDAQ: GOOG) has been on quite a run as of late, gaining over 20 percent during the last three months, which looks even more impressive when compared to the 20 percent decline its chief rival Apple (NASDAQ: AAPL) demonstrated over the same period.
A number of analysts increased price targets on the company this morning, some issuing targets as high as $1,000 on the tech giant.
We've seen this before (think Topeka's former $1,111 price target on Apple, right before its collapse), but is it really that far fetched to think the stock will gain 20 percent over the next year? Here's the case of why it probably won't:
First, the ratings.
Sanford Bernstein was the first to release its price target increase, from $820 to $1,000. Citing mass adoption of smart phones, tablets and the mobile web as a strong opportunity for Google, the report focused on the fact that search was up over 20 percent for the fourth-quarter despite declining PC searches.
This would mean either YouTube or mobile search skyrocketed to compensate, either of which is good news for the company. Sanford Bernstein is currently Outperform rated on shares of Google.
The second $1,000 price target came from CLSA, and increase from its previous target of $900. The reiteration of CLSA's Buy rating focused specifically on the new ad management system the company had released and how it will make utilizing Google adwords much easier for small businesses and new users.
The report stated that it expected the new system to provide an improved CPC, further adding to revenue growth.
As a cherry on top, Deutsche Bank, the most well known of the three analysts, also increased its price target. Upping the ante from its former target of $850, the company didn't go all the way to the $1,000 mark, but instead opted for a more “conservative” $935 price target.
The report also cited an improved climate in mobile advertising for the company, and how it is no longer weighing on the company's valuation like it did last year.
While the company's core business is indeed improving, one of the major knocks on Google is that “it's only a search company."
What's exciting about the last few months for Google is that the company has shown that it is aggressively pursuing new businesses.
On the list of projects that jump off the page are Google Fiber- the company's experiment with broadband internet which offers a connection 100 times faster than current broadband providers, its self driving car, retail stores, a new line of touchscreen laptops to compete with Microsoft's (NASDAQ: MSFT) Windows 8 and the new Google Glass project which just entered its next phase yesterday.
Wow, let's take a breath here.
Each one of those projects could easily become their own multi-billion dollar revenue stream, and each one is under the rapid development of Google's touted brilliant team.
The self driving car, once tested fully, could quickly become a software package marketed to luxury car makers or even to high-end American brands like Ford's (NYSE: F) Lincoln and General Motors' (NYSE: GM) Cadillac.
Think a $20,000 package that allows your new Cadillac ATS to drive itself. Let the auto companies handle the hardware, Google can sit back and reap the high margins of the software behind the vehicle. This scenario obviously hinges on the courts ruling whether Google is liable for crashes that happen with cars using its software.
The Google Glass project has already received a ton of hype, and is right on the coming trend of “wearable” computing. Essentially a tablet that you wear, Glass could prove to be a huge disruptor of tablets.
Further on the hardware side are Google's new Chrome touchscreen laptops. Perfectly positioned to do what Windows 8 dreamed of, perhaps the devices can can be what consumers wanted a next generation PC.
Deliver all that in the Google retail stores which are coming soon, and the company has a nice lineup of products with a direct distribution channel.
The Google Fiber project barely needs a mention- its already the dream of tech enthusiasts nationwide to have internet that is up to par with the rest of the world, and Fiber delivers that at a better price than the significantly lacking services of providers such as Comcast (NASDAQ: CMCSA).
A disruption in that space would not only be incredibly welcome to consumers who are tired of overpaying for terrible customer service, but it would bring the U.S. up to par with other leading nations when it comes to technological infrastructure, and surely provide a massive non-search revenue stream to the company.
So is a $1,000 price target on this company really that far fetched?
Many are saying “we've seen this before” with Apple, but keep in mind, Apple is a consumer electronics company. Google is a technology company, in every sense of the word.
The biggest knock against the search giant is that it's a “one trick pony”, but recent earnings releases have only shown that its one trick just keeps getting better and better, while a series of new projects each could hold a multi-billion dollar revenue stream for the company.
When cast in that light, a 20 percent upside seems fairly conservative.
Latest Ratings for GOOG
|Jun 2015||Mizuho Securities||Initiates Coverage on||Neutral|
|Mar 2015||Axiom||Initiates Coverage on||Hold|
|Jan 2015||JMP Securities||Maintains||Market Outperform|
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