In a report published on Friday, Jefferies analyst Brian Pitz reiterated a Buy rating and a $1000 price target on Google Inc (NASDAQ:GOOG). Jefferies Group LLC (NYSE:JEF) stated that their proprietary Product Listing Ad (PLA) checks confirm more advertisers are running more ads than ever, confirming that Google Shopping is a success despite the new fees.
Jefferies: Optimistic ahead of Google’s earnings
They reiterate Buy ahead of earnings as traffic data looks solid, with core desktop search and YouTube looking especially strong for the quarter. Margin is the wild card and will depend on Motorola Mobility Holdings Inc (NYSE:MMI) plus the number of Nexus devices sold through Google Play. With shares trading within a reasonably tight band since May, they still think Google Inc (NASDAQ:GOOG) looks attractively valued (~13.4x ex-cash their 2014 ests.) for a stock with such a compelling growth story.
In terms of products, Google is executing on multiple fronts as it extends its lead across a number of core services. They are particularly optimistic about YouTube, Android and Maps, which has significant go-forward revenue potential. For the quarter, their estimates are as follows:
Jefferies : Paid click growth faces (Very) tough comps in 2Q
For 2Q, they expect Paid Click growth of +16 percent Y/Y and CPC (cost per click) declines of -1.8 percent Y/Y. Note in 2H 2011, the explosion of mobile searches (in addition to the mix-shift towards International traffic, etc. ) drove rapid Paid Click growth at the expense of CPC (see chart below). On the heels of these changes, Paid Click and CPC Y/Y growth will face very tough and very easy comps, respectively. As Google monetizes more ads on a non-CPC basis, they think Paid Click growth is the most important indicator of a healthy advertiser ecosystem going forward.
Google is still seeing nice growth in desktop search volume
Traffic data from COMSCORE, Inc. (NASDAQ:SCOR) gives confidence ahead of earnings. The following chart tracks (explicit core) desktop searches in the US, as measured by comScore. Despite the rapid growth of mobile searches – which are excluded from this chart – Google Inc (NASDAQ:GOOG) is still seeing nice growth in desktop search volume.
Product Listing Ad (PLA) usage remains strong in 2Q 2013
Jefferies Group LLC (NYSE:JEF) track more advertisers running more ads than ever before in the US, confirming that Google Shopping is a success despite the new fees. When Google Shopping transitioned its US program to a paid service on October 17, 2012, some feared retailers would balk at paying Google Inc (NASDAQ:GOOG) for a previously free service. This has proven not to be the case, as PLA usage is accelerating in both the US and the UK.
These high-performing ad units are ROI positive for advertisers and as such they continue to forecast rapid adoption by retailers, especially as we approach the key holiday shopping season. They track wide adoption across a broad spectrum of verticals, but particularly in the Clothing & Shoes, Home & Garden, and Beauty & Personal Care categories, where an image of the product can ensure the user has found the exact item (correct color, etc.) before clicking the ad. In these top-three verticals, between ~55-70 percent of keywords now return a PLA.