A 10 percent drop over the course of two days in Google Inc (NASDAQ:GOOG) shares, wiping more than 24 billion dollars from the company’s value, have forced analysts to question whether the world’s leading Internet search engine could be nearing an end soon.
“[Google] could disappear in five to eight years, and disappear in the sense that Yahoo used to be the king of search. Now, for all intents and purposes, Yahoo has disappeared,” the Daily Mail quoted Eric Jackson, the founder and managing member of Ironfire Capital, a technology-focused hedge fund, as saying.
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The Internet giant’s advertising revenue has been declining, and the amount that advertisers paid Google Inc (NASDAQ:GOOG) on a click-per-click basis fell 15 percent. Analysts expect the advertising revenues to decline further, as consumers are increasingly migrating to mobile applications, and advertisers aren’t willing to pay as much for a mobile ad. Another reason for declining profits is the $12.5 billion purchase of Motorola. The struggling cellphone manufacturer lost more than 500 million dollars over the quarter.
“I keep saying Facebook Inc (NASDAQ:FB) isn’t the only one that has a mobile issue-Google does, too. If you are an investor in Facebook Inc (NASDAQ:FB), mobile is priced into earnings. I don’t think mobile in Google is priced in,” Colin Gillis, an analyst for Boston Consulting Group said.
After missing the Wall Street earnings expectations, many brokerages have reduced their price targets on Google Inc (NASDAQ:GOOG) shares, but at the same time also expect growing mobile advertising revenue to contribute to the revenues. Though the search engine company missed the expectations for the second time in a year, analysts term it as a short-term trade-off, as mobile advertising revenue becomes a bigger part of its business.
The Company’s Chief Executive, Larry Page, speaking on earnings, said that Google Inc (NASDAQ:GOOG)’s mobile business, which includes app sales and advertising, is generating revenue at an annualized run rate of $8 billion, up from about $2.5 billion last year.
Analysts at Barclays Capital, however, raised their price target by 4 percent to $780, saying “3Q Results Disappointing but Not Alarming”, and added “We believe dislocation in shares creates a buying opportunity, and we like Google Inc (NASDAQ:GOOG) into 4Q, as we believe the company can benefit from e-commerce tailwinds and moderation in CPC (cost per click) declines on easier (comparables)”.
PiperJaffray also lowered its outlook on Google Inc (NASDAQ:GOOG), saying “We are incrementally more positive, following the call, given our belief that despite any near-term fluctuations from mobile monetization and FX, Google’s franchise is intact and remains one of the most reliable growth stories on the Internet”.
Google Inc (NASDAQ:GOOG) shares closed down 8 percent at $694.37 on Thursday. The stock was up 1 percent at $700 in premarket trading on Friday.