Facebook Inc A Better Investment Than Google Inc: S&P Capital IQ


Facebook is posting better growth than Google, and should therefore be the pick of investors, according to S&P Capital IQ Technology sector head Scott Kessler. Recently, S&P Capital IQ lowered its rating on Google shares from Strong Buy to Hold.

Facebook Inc A Better Investment Than Google Inc: S&P Capital IQ

Investors overlooking risks in Google

In an interview with CNBC “Squawk on the Street “on Monday, Kessler stated that Facebook has seen two to three times more growth than Google at this point in time, and presents a greater opportunity for gain compared to Google, which is more focused on bringing down costs.

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Kessler noted investors are focusing more on Google due to the recent surge in the stock price, without looking into the potential risks. Investors should not ignore the probable risk in the search giant, especially after gains this year. There is much tough competition ahead, and growth will be an interesting story to watch going forward considering legal and regulatory issues, said Kessler.

“At roughly 25, our {EPS] estimate for this year, we think the stock is fully valued,” he added.

Facebook better than Google?

Google now has  more reasons to fear Facebook as the latter’s display ads are weighing on the former in terms of relevance and interest, according to Adobe’s Digital Index second-quarter report. Facebook’s click-through rate, which determines how frequently display ads are clicked, spiked to 99% compared to Google’s 24% between 2014 and 2015.

Further, ADI stated that 51% of the consumers believe Facebook ads are higher on relevancy compared to Google display ads, which are primarily found on YouTube. Just 17% of users prefer Google ads over Facebook. Even though Google earned five times more ad revenue compared to Facebook last year, recent ADI data indicates the gap is closing fast.

One of the many factors giving Google sleepless nights is “Mobilegeddon.” In April, the search engine giant upgraded its search algorithm and fined websites that lacked a quality mobile version. Many companies did not see this coming, and saw a drop of 10% to their traffic. This impacted Google ads on those sites, delivering less value at a higher cost. According to ADI, mobile CTRs all over the industry dropped 9% annually, even though mobile CPCs improved 16%.

Separately, a report from eMarketer noted that Facebook’s mobile display ad revenue in the U.S. was three-time higher than Google’s last year.

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