Google's Diversification Efforts Weakening Margins

Google's ongoing efforts to diversify its businesses that could generate a more consistent annual cash flow might do the company more harm than good in the eyes of at least one Wall Street analyst.

In a review of Q2 2014 earnings expectations, Brian Wieser, senior research analyst at Pivotal Research Group, reduced Google's stock price target slightly. "Our price target on Google is now $560 vs. $570 presently, as modest upside revenue tweaks associated with online video are not enough to offset slightly higher costs of capital we apply to companies across our full coverage universe," he wrote in research note released late Tuesday.

Wieser attributes weakening margins -- as ad revenue shifts from high-margin self-service-paid search advertising, accounting for the majority of revenue as recently as 2005 --  to lower-margin businesses.

Advertisers worldwide will spend $545 billion on paid media in 2014 -- up 5.7% from the prior year, per eMarketer

While Google's stock target price fell, Wieser raised Facebook's from $74 to $81 and Twitter's from $34 to $38.

Wieser revised Facebook's target upward, citing rising app installs, an ongoing focus to sell ads to small and medium-sized enterprises, international growth, Instagram, a mobile ad network and a larger share of digital budgets that would otherwise go to online video. He also cites the LiveRail acquisition announced earlier this month.

Twitter got a nod for the company’s mobile ad network efforts. "Most investors continue to be focused on users and user growth, incorrectly in our view: the likelihood of Twitter becoming universally appealing seems small, but the very large existing user base and the medium’s unique attributes mean there is real revenue to be generated from the core platform," Wieser wrote. "A mobile ad network will further help Twitter monetize a broader universe of ad budgets, as the company is well positioned to append data to ad inventory to produce meaningful value to a significant number of publishers."

Yahoo's stock price target was unchanged at $38, as the industry waits for more news regarding the actual proceeds that Yahoo and its shareholders will see from the Alibaba IPO. 

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