In the latest grueling stock market rout, Google (GOOG, GOOGL) has certainly taken some knocks. After reaching nearly $700 in mid-July, the price has plunged by about 12%. Yet it looks like investors see an opportunity to snag a bargain. In fact, Google stock shot up 8% to $659 by Wednesday’s closing bell, and is up another 1.5% in Thursday’s premarket trading.
It certainly helps that various analysts are showing their enthusiasm. For example, Goldman Sachs analyst Heather Bellini raised her target on GOOGL stock from $680 to $800.
So yes, if this comes to fruition, there is 20% upside from current levels. And Bellini’s price target is not out of line with the rest of the Street, which has an average Google stock price target of $770.
Google Stock: Grabbing the Bull by the Horns
So why the sudden bullishness from Bellini? Well, she thinks there is much more room to pump up revenues from the megatrends of mobile and YouTube. She also likes the tone from CFO Ruth Porat, who recently joined Google, and has shown a willingness to get more discipline on costs.
Although, as seen with the latest quarter, the numbers did not look too impressive. After all, revenues climbed only 11% to $17.7 billion.
Granted, there was the headwind from the strong dollar. But GOOGL is also undergoing a major transition from the desktop to mobile. The result is that there has been a drop off in monetization, as advertisers have taken their time to evaluate the effectiveness of mobile ad formats. But according to the earnings call, Porat noted that the company is making headway in closing the gap. In other words, if this continues, there should be increased momentum on the top line.
Then again, Google has a tremendous platform. Keep in mind that Google Search, YouTube, Android, Chrome and Google Maps each have over a billion users. But a key for the mobile strategy is the company’s massive investments in location-based technologies. In fact, GOOG gets more searches from mobile devices than from desktop computers in ten countries, including the U.S. and Japan.
Video has also been critical for Google stock, as it has become a highly engaging activity in mobile. Interestingly enough, YouTube gets a larger share of the coveted 18-to-49-year-old demographic in the U.S. vs. all other cable networks. Oh, and the average viewing session on mobile is more than 40 minutes, up more than 50% on a year-over-year basis.
Bottom Line on Google Stock
Google has built a strong system to monetize the huge amounts of traffic. For example, there is Google Play, which continues to generate revenues from games and other freemium apps. But GOOGL also offers programmatic buying for advertisers through DoubleClick. Of course, all of this involves extensive analytics, which helps to optimize revenues.
All pretty good, right? Definitely. What’s more, the valuation on Google stock is fairly reasonable, with the forward price-to-earnings ratio of 19. This compares to 31 times earnings for Facebook (FB) and a whopping 367 times earnings for Netflix (NFLX).
In other words, for those investors looking for a great way to play the seismic changes in mobile and online video, Google stock does look like a pretty good value right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
